Starting out with investing in stock market

[thomasdan]

Hello everyone.

My wife and I are finally at the point where we can start investing. We should've started in our 20s but had different mindset at that point.(drinking and traveling) we are now in our mid 30s and kicking ourselves. We've have been contributing to our 401 k though each for the last 9 years. We currently have a mortgage and 1 car loan now. All other finances are in place. We charge most bills to our credit card to maximize our airline points and pay the bill off completely at the end of the month.

I don't really understand how mutual funds, index funds, compounding etc works. So I'm currently researching those info. Base on reading others post, I KNOW that getting a financial advisor is not the way to go.(Thanks Disneysteve)

We have about 1 year worth of EF. Should we keep the 1 year or about 6 months?

Also we have about 8-10k to start investing. But not sure what to invest into.
All I know is I probably want to start off agressive. But not sure at our age. Any input would be helpful. What mutual or index fund would you guys start off with?
Or a combination of international or domestic?

Should I split it and also do a 529 for my kid?

Sorry for all the question since I'm a noob regarding this. Please be nice.

Hope everyone is having a great day.

[Jluke]

if you qualify for a roth I would recommend investing there first.

target fund or a lifestrategy fund would be good, but maybe not for a taxable investing account (tax purposes).

you would want something that is 90:10 or 80:20 (Stocks:bonds) if you want to be aggressive.

If this is taxable then you would want to pick a Total US Stock fund (VTI or VTSAX if vanguard) and maybe a Total international fund if that's your thing.

ensure your bond investments are in your retirement accounts (tax favorable).

[disneysteve]

I'll answer with lots of questions .

What % of income is going into the 401k?
How is that money being invested?

Do you qualify for Roth contributions?

How old is your child?

Is there any reason you feel you need a 1-year EF? Unstable job? Self-employed?

What is the intended purpose for this 10K and what is the timeline for when you expect to need it?

[thomasdan]

if you qualify for a roth I would recommend investing there first.

target fund or a lifestrategy fund would be good, but maybe not for a taxable investing account (tax purposes).

you would want something that is 90:10 or 80:20 (Stocks:bonds) if you want to be aggressive.

If this is taxable then you would want to pick a Total US Stock fund (VTI or VTSAX if vanguard) and maybe a Total international fund if that's your thing.

ensure your bond investments are in your retirement accounts (tax favorable).

Thanks for your reply jluke.

I will research more about Roth.

Not to sound stupid...can you explain what is taxable or not taxable? I figure I would pay taxes for any gains when I retire. Is that what you're talking about?


Thanks again

[thomasdan]

I'll answer with lots of questions .

What % of income is going into the 401k?
How is that money being invested?

Do you qualify for Roth contributions?

How old is your child?

Is there any reason you feel you need a 1-year EF? Unstable job? Self-employed?

What is the intended purpose for this 10K and what is the timeline for when you expect to need it?

Your questions to my questions helps me with things that I might've not even thought about. So ask away.

I believe my wife and I are contributing 6 or 8%. It's what my company matches. I believe it's being invested in "WF target"???
I would have to check later to be exact.

My son is 7 month old.

No, my wife and I both have stable jobs. We just figured we needed to save 1 year since we have a mortgage and unexpected things happen.

The intent is first retirement and also for college. I would like also to continue to add $200 a month following the initial 10 k investment.

I figure we do qualify for a Roth. I would have to see what the requirements are. But don't see why not.

[greenskeeper]

contribute to the 401k at least to the employer max minimum

pay off credit card debt, auto loans, so that your mortgage is your only debt

then open a roth IRA with after tax dollars, which will be tax free when you withdraw at retirement. Additionally the principal that you paid into the fund can be accessed at anytime without penalty after 5 years, which is a nice benefit if an emergency arises.

lastly think about a college 529 plan

[thomasdan]

contribute to the 401k at least to the employer max minimum

pay off credit card debt, auto loans, so that your mortgage is your only debt

then open a roth IRA with after tax dollars, which will be tax free when you withdraw at retirement. Additionally the principal that you paid into the fund can be accessed at anytime without penalty after 5 years, which is a nice benefit if an emergency arises.

lastly think about a college 529 plan

Currently, We're putting in what our employer matches.

We don't have any credit card debt. Just our monthly expenses that we charge to our credit card to maximize our airline points. Which at the end of the month. We pay outright.

We have about 4 years left on our Car loan. Should we take half of the 1 year EF and the 10K to pay off the car loan?

Going that route.. we won't have any money to invest.

BTW, our car loan is only 0.9 interest. So we're not stressing over the loan.

We also don't want to wait a couple years to start investing since we're late to the game.

hope that makes sense.

[disneysteve]

My wife and I are finally at the point where we can start investing.

We've have been contributing to our 401 k though each for the last 9 years.

I believe my wife and I are contributing 6 or 8%. It's what my company matches. I believe it's being invested in "WF target"???

We also don't want to wait a couple years to start investing since we're late to the game.

Before I answer anything else, I wanted to address something. You started the thread by saying you are "finally" at a point where you can "start" investing.

You have BEEN investing for 9 years! You've been putting 6-8% of your gross annual income into your 401k. That IS investing, so stop thinking you are behind or just getting started. You're doing far, far better than the typical American. You're in your mid 30s which means you've been doing this since your mid to late 20s. That's awesome! You should be patting yourselves on the back, not feeling like you have failed somehow.

[disneysteve]

As for advice...

It sounds like you spent way too much on your car if it will take 6 months of your EF plus 10K to pay it off. What's the balance on that loan? Even with a low interest rate, those payments are really a drag on your ability to save more.

I don't think I would accelerate the payments on a 0.9% loan. I'd rather see you investing. Your ultimate goal should be to have at least 15% of income going to retirement. If you're at 6 or 8%, you've got some work to do to get there.

If you're already getting the max match on the 401ks, I agree with opening Roths for each of you and maxing those if possible. The max is $5,500/person so $11,000/year. If you did that, plus the 401k contributions, what total percentage of your gross household income would you be putting away?

[thomasdan]

Before I answer anything else, I wanted to address something. You started the thread by saying you are "finally" at a point where you can "start" investing.

You have BEEN investing for 9 years! You've been putting 6-8% of your gross annual income into your 401k. That IS investing, so stop thinking you are behind or just getting started. You're doing far, far better than the typical American. You're in your mid 30s which means you've been doing this since your mid to late 20s. That's awesome! You should be patting yourselves on the back, not feeling like you have failed somehow.

Thank you disneysteve.

To be honest, Since the money automatically gets taken out of my paycheck for my 401k. Sometimes I don't even think about it until I get my quarterly statement. I should be better at that.

This forum and just hearing people talk about investing in mutual funds, index funds, international funds etc.... I figured that's what we needed to do also. So when I said "finally" I was referring to that. Everything I read, it says to have a diversify portfolio. Since we don't, it feels like we're falling behind. Hope that makes sense.

[thomasdan]

As for advice...

It sounds like you spent way too much on your car if it will take 6 months of your EF plus 10K to pay it off. What's the balance on that loan? Even with a low interest rate, those payments are really a drag on your ability to save more.

I don't think I would accelerate the payments on a 0.9% loan. I'd rather see you investing. Your ultimate goal should be to have at least 15% of income going to retirement. If you're at 6 or 8%, you've got some work to do to get there.

If you're already getting the max match on the 401ks, I agree with opening Roths for each of you and maxing those if possible. The max is $5,500/person so $11,000/year. If you did that, plus the 401k contributions, what total percentage of your gross household income would you be putting away?

We owe about 25k. We bought it for more room since we added an addition to the family. Plus grandma tends to be with us a lot too.

My wife and I both were driving a 2 door car with no payment for years. But with a baby,car seat, stroller and all the other stuff. It just became a big problem. So I sold my car and got a SUV. It was alittle more than I wanted to spend. But it has been awesome with more room especially with road trips, camping, etc. We're outdoors a lot.

We're able to save 1k total a month after paying ALL bills. So right now, it just goes to our savings account with the crappiest saving rate.

Since I have a 1 year EF. I don't want that 1k that we save each month to just go into the bank account.

Earlier I mention that I wanted to invest 200 a month into the market. And then just keep 800 in the saving account to build more EF. But if I don't need more than 1 year EF. I would invest the total 1k.

[Fishindude77]

If you have a well managed 401K, there wouldn't be a darned thing wrong with simply increasing your contribution into that plan. We gt 4% match if we contribute 6%, but I've always contributed 10%. It's just darned easy, it's pre-tax, and you don't hardly notice it coming out.

Roth isn't a bad idea either. Or some well managed mutual funds.

[Jluke]

I'll focus on the EF.

You are now at the point where you can think of your EF in tiers.

Tier 1 is a certain cash amount that you have immediately available to you - preferably at an online bank like CapitalOne or Ally (or whatever another one is that pays 1% or so).

Tier 2 can be either your Roth or your taxable investing account. I say either because you should be investing up to 11k in there first before investing in a taxable account.

In my case, Tier 1 is CapOne, Tier 2 is credit card, Tier 3 is taxable investments, Tier 4 is Roth (key is to put Roth last so you don't touch it). I probably wouldn't make it to tier 3, but I would have to choose between tier 2 and tier 3 order depending on dollar amount.

hope it helps

[disneysteve]

Since the money automatically gets taken out of my paycheck for my 401k. Sometimes I don't even think about it

Bingo. Therein lies one of the great benefits of the 401k plan. It just becomes something that happens automatically in the background. That's why so many of us urge everyone to participate if they have access to a plan.

Everything I read, it says to have a diversify portfolio. Since we don't, it feels like we're falling behind.

You said earlier that you think the 401k is in a Target fund. If that's true, you are absolutely diversified. If you pull your most recent statement, it should tell you the name and/or ticker symbol of the fund. Tell us what that is and we can explain more about it. Are you and your wife in the same fund? If not, tell us how her plan is invested, too. I think you're in a lot better shape than you realize.

By the way, do you both work for the same employer?

We're able to save 1k total a month after paying ALL bills. So right now, it just goes to our savings account with the crappiest saving rate.

Since I have a 1 year EF. I don't want that 1k that we save each month to just go into the bank account.

Earlier I mention that I wanted to invest 200 a month into the market. And then just keep 800 in the saving account to build more EF. But if I don't need more than 1 year EF. I would invest the total 1k.

I see no reason why you need more than a 1-year EF. Even that is probably overkill from what you've said. So that gives you 1K/month to invest. You can put up to $11,000/year in Roths ($5,500 for each of you). You may or may not want to do that full amount. You need to determine if there are any other non-retirement savings goals that you need to focus on. That might be something big like college or your next vehicle or something smaller like a family vacation, home repair, etc. Some of those smaller things could come from your EF, though, since you really don't need 1-year in there.

I'm a big supporter of saving for college and the sooner you start, the better, but you don't want to sacrifice retirement savings in the process so it's a delicate balance. I'd suggest starting a 529 even if you only do $50 or $100/month. The best site for educating yourself about that is savingforcollege.com. They also have rankings of the best 529 plans. If your state offers a tax deduction for your contributions, that's usually your best option. If they don't, then the rankings are important.

[disneysteve]

You are now at the point where you can think of your EF in tiers.

I was going to mention that, too. When the only savings you have is your EF, it probably should just be in a high-yield savings account. Once you reach the point where you have other investments, you need to broaden your concept of what constitutes your EF. Look at us. We have a portfolio that's worth over 900K. We have cash (actual physical cash) in a modest amount on hand in our home for instant access, we have a surplus in our checking account of a few thousand dollars, we have an online savings account, we have some Series I bonds, we have taxable mutual fund accounts and individual stocks, and then we have our retirement accounts (Roth, 401k, 403b). So there are many layers of money that we could access if needed.