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Thread: Mel & other finance gurus, a ??

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    Veteran Member christian211's Avatar
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    Default Mel & other finance gurus, a ??

    Hubby and I are looking to start investing for retirement and don't know what to invest in, how to start, what to put in, if it is considered taxable income every year, tax loopholes, etc.. We have a 401k and will keep that going, but don't want to put all my eggs in a basket, so to speak. Also, most of you tend to speak in a sophisticated fashion in a sense when it comes to finances soif you all could dumb it down a little, I'd appreciate it


    Also, we plan on saving up for a dp on a house and was wondering if I should put that money in a fund or something while we are saving up and if we would get penalized for taking it out in 2-3 yrs????
    I'd also love to hear some specific recommendations as far as funds, stocks, etc. goes too.


    TIA- Christian

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    Default Re: Mel & other finance gurus, a ??

    All I can add is that a money market fund is a good place to put your money for your house down payment. There are no penalties for taking money out of a money market fund. In fact, I have read that most of your liquid money should be in a money market fund that you are planning to use as your emergency fund. You do have an emergency fund, right? 3-6 months of living expenses?

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    Featured Member Katherine's Avatar
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    Default Re: Mel & other finance gurus, a ??

    I'm far from knowing as much as Mel and the others, but here are some things to look into. (NOTE: Not suggestions per se as I'm in the same boat as you, learning) Just a place to start your own research from.

    As mblank said- EMERGENCY fund. In a money market account. Or, Mel has a great system that she uses that's described in another post. Melonie posted that she takes her six months of emergency money and puts one month's worth of expenses into six different CD's. The CD's are staggered so that each month a new one finishes. I think her way is great, because it forces you to not touch the money unless it is a REAL emergency. And god forbid you can't work, you only have one month wages opening up each time, so you can't overspend, because it'll be another month till you get more.

    2. You 401k. Continue to put as much as you can into there. Do you get a company match? Put as much in yearly to make that company match. It's free money!! Then funnel the rest into an IRA. Traditional or ROTH depending on your situation. There are many tax benfits to this. And no, it is not taxable every year. Depending on the IRA you choose, you either deposit money and can actually claim that as a deduction on that year's taxes. It grows tax free and then you pay taxes when you withdraw (traditional IRA). A roth, which is what is good for me, is where you put in after tax dollars. You don't get any tax benefit now. BUT, it grows tax free, you withdraw tax free, and you don't have to start making mandatory deductions at a certain age. You have to make under a certain amount of money (Pretty sure it's 95 grand a year for when you're single, may be different for married couples.)

    It is very important to max out what you can for your retirement in these accounts as they give you the most benefits and the earlier the better. There are al sorts of calculators you can find online, but if you deposit 4 grand a year (the max on an IRA) from age 25 to 35 you will have more than DOUBLE the amount of money than someone who deposits 4 grand a year from age 35-55!!!!! Compound interest! The earlier you start the better!!

    3. As far as what to do after your retirement contributions are maxed out... There are choices. You can invest in other funds. I'm in the same boat as I want to start saving for a dp too. I've decided that the best course of action for me is to invest in some core stocks and then one conservative fund and one aggressive fund. The aggressive will be riskier, but since I don't want to lose all my money, I'm going to balance it out with safer choices (at a lower return) too. As far as being penalized for taking money out of funds, here's the deal.

    You do get penalized for going into your retirement accounts early. EXCEPT!!!: First time home buyers are allowed to take out up to 10 grand for the purchase of a new house. I would not recomend touching the retirement accounts though (Please regard my disclaimer at top- do your own research on that).

    When you invest in funds other than your retirement accounts you can withdraw the money whenever you like. You invest after tax money. If you make money, you could have to pay taxes on that.

    So everything I told you above after the bit about the retirement stuff is my own plan of investing action right now. Take and do as you will.

    Please remember that you need to figure out what is right for you before taking any financial advice from anyone.

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    Banned Melonie's Avatar
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    Default Re: Mel & other finance gurus, a ??

    point #1 - 401k's, Conventional IRA's etc. all look like a good deal today because of the 'deferred' income taxes - with a big note that these are not 'tax free' but merely 'tax deferred' until you retire and start withdrawing money from them. But, just like the housing market being assumed' to go up in value forever, the 'assumptions' that make 401k's and IRA's look good today are not guaranteed to go on forever (i.e. that you'll actually be able to pay less taxes tomorrow on withdrawn 401k or IRA money than you would today - that having a lot of money saved up in a 401k or IRA won't reduce your eligibility for Social Security checks etc.). Again, like a mortgage, opening a 401k or IRA involves making financial commitments on your part that span 30+ years, but with no guarantee that the gov't's side of the equation can't be changed before those 30 years are up ! Because of this, I personally am reluctant to put a whole lot of money into a 'tax deferred' 401k or Conventional IRA.

    Point #2 - if a 401k has an 'employer match' up to a certain level of contributions, this is all 'free money'. Thus if one or both of you have a 401k with an 'employer match' you should definitely make the maximum contribution that the employer will match with additional contributions. However, given that 401k's do involve the risk of the rules being changed after the game has already started (discussed in Point #1), I personally wouldn't recommend making additional contributions to the 401k's or other Conventional 'tax deferred' IRA's beyond the employer match limit.

    Point #3 - ROTH IRA's avoid much of the risk associated with 401k's and Conventional IRA's in that you are contributing 'after tax' money ... thus in theory at least it would be harder for the gov't to 'change the rules' later re taxation of ROTH IRA money when it is withdrawn after retirement. However, ROTH IRA's do provide the advantage of allowing interest and dividends paid on ROTH IRA investments to accumulate tax-free. Thus I would recommend that you seriously consider making at least some of your additional retirement fund contributions beyond your 401k 'employer match' level to a ROTH IRA.

    Point #4 - in the case of 401k's, Conventional IRA's, ROTH IRA's, and for that matter other investments that are not under the umbrella of a retirement account, you also run the future risk that the gov't will institute a 'means test' on Social Security checks before you reach retirement age. If and when this happens, it could very well result in every extra dollar you saved or invested resulting in one dollar of reduced Social Security payments - as future Social Security payment deficits force the troubled system to find some way to cut expenditures and some pandering politician floats the idea that people who haven't saved any money for retirement NEED big Social Security checks while people who scrimped and saved DO have their own money so they don't need Social Security checks. From this standpoint, owning some hard assets (real estate, precious metals) rather than 'dollars' would seem to make sense.

    Again just my own personal opinion, but I wouldn't go crazy putting all of your savings into an organized retirement account ... because all organized retirement accounts involve some sort of penalty if you are forced to withdraw money before retirement age. Thus I am of the opinion that you might as well leave yourself 'free' of future gov't 'rule change' tax consequences by making 'regular' investments in stocks, bonds, CD's, money market etc. which don't have long term strings attached in regard to taxes like money in organized retirement accounts does.

    Yes, I personally use a system of six rotating 6 month maturity CD's as a means of accumulating savings as well as for my 'emergency fund'. At the moment the 6 month interest rate is virtually the same if not actually higher than many longer term CD interest rates, so I see no point in making longer term commitments. The 6 month CD interest rates are, however, significantly higher than money market or bank passbook 'overnight' interest rates.

    I obviously invest in stocks as well ... but this money is looked at as a 'long term' investment. I try not to buy and sell stocks in a time period any shorter than 1 year, because if I do I have to pay the regular income tax rate on the profits instead of the much lower 'capital gains' tax rate. Obviously, I don't always stick to this rule (because paying higher taxes on a winning stock is still better than paying no taxes on a losing stock that I held onto for too long !).
    ~
    Last edited by Melonie; 10-05-2006 at 09:58 AM.

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    Default Re: Mel & other finance gurus, a ??

    Since you have absolutely NO experience in investing in stocks/bonds, etc. I highly suggest you go find a financial specialist. There are so many choices out there and with that different tax withholding requirements that sitting down with your financial documents with someone who can advise you is the best thing to do. Go to several different people and get a bunch of opinions...take what they say and research everything...ask questions...learn the game. Figure out what your financial goals are (both short and long term) and go from there.

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    Veteran Member StuartL's Avatar
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    Default Re: Mel & other finance gurus, a ??

    I don't want to contradict the advice above ... but do not go to several different financial people. Why not?

    If they are any good, they will be charging you by the hour. It will quickly prove costly. The amount I charge per day would make your hair fall out when converted from euros back to US$.

    Plus, most financial people specialise and so the majority are not investment experts. There is just too much info out there for anyone to know everything, but in my experience, many financial advisers know very little about long term investing.

    Personally, I think you are on the right course = learning to do it yourself. You always need to understand what is going on so that you can make informed decisions for you. When you have accumulated a lot of savings, this will be very important. So start learning and practicing now.

    I'm not going to go into the theory here, but ensure you diversify. Just being in the stock market will put you at far more risk than you understand. Other areas to investigate for funds that receive a % of your monthly savings are bond funds, commercial property funds, metals / mining funds and some in cash.

    Good luck!!

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    Banned Melonie's Avatar
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    Default Re: Mel & other finance gurus, a ??

    Two more points for 'short term' consideration. First, you live in Taxachusetts ... such that investing in Mass Tax Free bonds is probably something that makes huge sense from a standpoint of total 'after tax' return on investment for at least a portion of your investment money. I did a quick net search and turned these offerings up immediately ...



    Even a 'one year' 2008 bond offers a 5.26% equivalent taxable dividend rate ! Also, having part of your income from a tax exempt source also lowers the effective tax rate on the last dollars of normal taxable income that you earn. But due to the 'rich get richer' principle, there is a 'hurdle' that you must jump before you can play in the tax exempt bond league ... coming up with the $10,000 (or so) minimum buy-in price.

    So in the short term, start saving your money in a money market fund or better yet rolling short term CD's. Number one priority is that you need to save enough for 'emergencies', which given that there are two of you and that you live in a high cost state probably means at least $18,000. If you want to use my system buy a $3,000 six month term CD every month for the next 6 months from your local bank, and then keep 'rolling them over' into new 6 month CD's as they mature ... forever. If you can't afford to put $3,000 into a CD every month, put in what you CAN afford i.e. buy a $1000 CD. Then six months from now when the first $1000 CD matures, take the proceeds and add another $1000 to buy a $2000 CD. Repeat another six months down the road when the $2000 CD matures by adding another $1000 to the proceeds and buying a $3000 CD. Eventually you'll attain your first goal of having six consecutive $3000 six month term CD's in constant rotation.

    Number two priority is probably to build up a cash reserve for future investment which is large enough to get you over the minimum buy-in 'hurdle' and allow you to make serious investments in the future (without getting eaten alive by broker's fees and commissions). This cash reserve money wants to be totally liquid so that you can 'jump' when investment opportunities present themselves without early withdrawl penalties, such that a money market fund at a local bank probably best fits this need. After you've got your six $3000 six month term 'emergency' money rotating CD's in place, the next logical step is to then start saving money in a money market fund so that it is ready for making future investments.

    Once your money market fund has built up a balance of $10-$20,000, THEN is the time to start 'shopping' for a Massachusetts Tax Exempt Bond investment. As you can see from the link I posted above, you can buy these sort of bonds online today. There are also single state tax exempt bond mutual funds available which can be purchased online - like FDMMX or VMATX or SCMAX - however these mutual funds usually 'skim' some of your return in the form of management fees in exchange for a lower minimum 'buy-in'.

    After you've got your six rotating 6 month term CD's in place, and after you've invested say $20,000 in Massachusetts tax exempt bonds in one form another, it's time to start building up your 'investment ready' money market fund again. Once the balance again grows to $10-$20,000, THEN it will be time to go talk to a financial advisor. Because economic conditions do change, and change quickly (especially in election years LOL), IMHO there's really no point of paying a financial advisor for advice which applies to today's economy when you aren't really ready to invest right now. It's better to have build up $10-$20,000 in the money market fund that is 'ready' for investment, and THEN consult a financial advisor for timely advice as to where that money might best be invested.

    I have to agree with Stuart (who IS an accredited financial advisor, albeit in Europe), that if you're going to be charged major bucks for professional advice you're also going to want to be in a position to make the best use of that advice. There would have been no point at all of paying a financial advisor last year to obtain sound financial advice which applied to last year's economy but not actually having enough money ready to invest until this year ... by which time many of last year's 'hot' investments have turned 'ice cold'.
    ~
    Last edited by Melonie; 10-06-2006 at 01:50 AM.

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    Default Re: Mel & other finance gurus, a ??

    Quote Originally Posted by StuartL
    I don't want to contradict the advice above ... but do not go to several different financial people. Why not?

    If they are any good, they will be charging you by the hour. It will quickly prove costly. The amount I charge per day would make your hair fall out when converted from euros back to US$.
    Hmmm...this is what we did. They did free consults...and then after that we would have to pay for the time. Maybe its not like this across the board...

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    Default Re: Mel & other finance gurus, a ??

    Consultations are complimentary for most financial professionals. Why would an advisor charge before they even got to know the prospective client? Stuart, you don't seem to know what you are talking about in regards to US finances. Why are you here again? Tryint to squeeze some guilders outta these gals?

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    Default Re: Mel & other finance gurus, a ??

    In the USA, all financial advisors regardless of 'level' are going to offer a free 'meet and greet', which will serve to outline in general terms the financial 'scale' of the prospective client and the proposed services the financial advisor can provide ... but without delving into any specific analysis or recommendations.

    Also, in the USA, 'financial advisors' at the level that Stuart is talking about for Europe are typically referred to here as 'professional money managers' a la Before any issues develop due to a gap in translation I thought that I had better point this out.

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    Default Re: Mel & other finance gurus, a ??

    Oh no, we all do the same or similar. I meet people for free, of course I do. What financial adviser wouldn't?

    The point is that personal finance is very complex and it is not possible to get to grips with anyones finances in 30 mins or 1 hour. It takes longer than that to do a half hearted fact find for most people. To do the job properly takes much longer.

    So you see 4 or 5 people about your finances for 45 mins each? What have you learned? You have decided that you liked one more than the others. I would bet that you would not be much further advanced than that. Was it worth it? Maybe, maybe not.

    But to consult from there on is going to get pretty costly, pretty quickly.

    When I am working for fees, I charge a daily rate. I don't get it too often because most people wince at it. But if I do a couple of days per month I'm ok. I generally charge €1,500 per day. Convert that into US$ and you'll soon see the point I was making.

    If only I could do 20 days per month like it...

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    Default Re: Mel & other finance gurus, a ??

    Why don't you charge a flat consulting fee Stuart? That's what I do. If they plan on rolling over lots of assets, I lower the fee. If they need complex planning, the fee is higher.

    If they are just starting out, and need that push, I keep the fee pretty low in order to ensnare them for the long run. But perhaps our systems are different....how many hours does it actually take for you to complete an analysis and open accounts?

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
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    Default Re: Mel & other finance gurus, a ??

    All I know is that our "consults" told us EXACTLY what they would do, and they gave us a list of programs that they thought we would benefit the most from...and they did this for free. I guess our consults didn't take THAT long, cuz I'm organized financially...so I had all the desired paperwork in order for them to sit down and see what would work best for us.

    I don't know about anyone else, but I wouldn't go with someone who just rattled numbers off and didn't explain how I would benefit from certain programs, etc. I also wouldn't go with someone who told me that they didn't have time to sit and give me advice without charging me out the yin-yang right off the bat. Everything we got was pretty full of information. And our financial planner is awesome. We do pay more for him than some of the other ones, but he's totally worth it...and he didn't try to charge us like it sounds like you do...he won out in the end.

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    Default Re: Mel & other finance gurus, a ??

    It may be because of the market I am in.

    My clients are all expatriates and mostly in mixed marriages. By that, I mean that it may be a British male, a Dutch female and they live in Belgium or Luxembourg. Usually, at least one of them works for the EU which means that they qualify for other specific benefits and tax allowances. Often they also own property in two or three countries as well.

    As a general rule, to complete a full fact find, I need to meet them three times. Their finances are just so complex that I can't do it any other way. Believe me, I have tried!!!

    I then need to go away and research the specific tax rules for whichever nation and subject, I often need to find people to help me translate and interpret too, then help them solve the 8 to 10 problems that they (always) have because their finances have been too complicated for them to do alone. And this is before I help them to do whatever it is they actually want to do (eg save more).

    In short, it may be that what I do is simply much more complex than the normal adviser role. When I chat to former colleagues in the UK and explain what I do, they look at me agog (is that still a word?) or in disbelief.

    Now that I think about it, I am also in a very fortunate position that there are very few people (in Brussels at least) that can do what I do. Most advisers would run a mile from my clients for fear that they would be embarrassed by their lack of knowledge.

    As I look at that little lot above, maybe I hadn't explained myself clearly in my earlier post. Sorry. Perhaps you should just ignore my experience on this one...

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    Default Re: Mel & other finance gurus, a ??

    Well back to the point of this thread....

    My advice to you Christen is , because you don't have experience with stocks or mutal funds just yet , be very conservative investing. Start off with CDs or Money market accounts that are low risk. 401ks are generally tied to mutal funds. If that is the case, choose funds that are low in stocks. This way while you are learning you are not loosing money from some bad choices.

    A great way to save for a home is a Roth IRA. After five years you can make withdrawals from it, for a home purchase or education, no tax penalty and no early withdrawal penalties either. With a Roth IRA you can choose the investment vechile ie Cds, mutal funds, and or stocks.

    Do some research about stocks and mutal funds. Read everything there is. No Load mutal funds do not have an additional fee, Loaded mutal funds do and the fees vary depending on the funds. Each mutal fund should be well diversified. That is just one tid bit every investor should know.

    When you feel comfortable make small investments in mutal funds. That way you are learning and still making your money grow.

    Good Luck!

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