Where should we invest or save our personal income?

Question

My husband and I are frugal, and we love to save as much as we can. I max out my 401k yearly, but my husband's employer doesnt offer any retirement benefits so we max out our IRA's. We started to save $10K a year and put it in an emergency fund. However, we still have $3K a month to save. Where should we invest it? Our net worth is less than $500K, and we make gross $150K/year combined and no kids yet. A financial advisor suggested putting the extra $3K a month in a variable annuity or stocks, but didnt suggest CD/Treasury Bonds, etc. What's the best financial wealth strategy for a couple in their mid 30's?

Answer 1

You should invest in stocks, bonds, and money market funds. You want to buy a diversified portfolio of stocks, as individual stocks are too risky. For most folks this means buying mutual funds. I like Vanguard.com, other people like Fidelity, TIAA-CREF, and DFA. Buy no-load, low cost funds. If you are like most people you will invest part of your money aggressively in stock funds, and part conservatively in money market funds and bond funds. Vanguard.com has an on-line questionnaire which will give you an idea how aggressive you want to be.

I like index funds. Because of their broad diversification, you are less likely to have a dramatic drop in value. They also have the lowest expenses. For stock funds, I would suggest putting ~70-80% of your money in the Vanguard Total Stock Market Index Fund. and ~20-30% in a foreign stock index fund. However, there are many different opinions out there on what the best mutual funds are. Read the links below and form your own opinion

Buying a house instead of renting will save you a lot of money in the long run. You don't have to pay rent and you build equity in your house instead. Buying rental property can also be a good investment. However, being a landlord can be hard work, and many people are not good at it. If you don't know how to handle deadbeat renters, you can have trouble.

If you have high-interest debt, like credit cards, it is best to pay this off first before trying most of the investment ideas above. You should also have 3-6 months of salary saved up as an emergency fund in a bank or money market fund before trying more risky investments.

I do not recommend annuities. They have high fees, many hidden.

Believing advice you get on Yahoo answers can be risky, so read these websites for further information. If you find it too confusing, contact a professional financial advisor. They will charge you significant commissions, however.

Sources:

http://www.vanguard.com/VGApp/hnw/planningeducation
http://www.dallasnews.com/sharedcontent/dws/bus/scottburns/columns/2007/vitindex.html
http://www.fool.com/school.htm
http://sec.gov/investor/pubs/assetallocation.htm
https://flagship.vanguard.com/VGApp/hnw/FundsInvQuestionnaire?cbdInitTransUrl=https%3A//flagship.vanguard.com/VGApp/hnw/planningeducation/education


Annuity articles:
http://www.fool.com/retirement/annuities/annuities.htm
http://www.fool.com/personal-finance/retirement/2005/03/24/annuities-who-needs-them.aspx
http://www.fool.com/personal-finance/retirement/2007/02/06/variable-annuities-the-lowdown.aspx

Answer 2

1st never ever buy an annuity of any kind.
This "financial adviser" is not fiduciary to you, it will be all about commissions and fees and annuities are the highest of the high.

2nd I hope you own you home.

CD's and Treasury Bonds typically have a low return. These would only be useful if you need access to the money in a relatively short time frame say 2 to 4 years. If an investment can't beat long term inflation of 4% it's not really worth it as you would be losing money. Besides a www.emigrantdirect.com savings account is 5.05% if an investment can beat that then it's worthless.

So if you are saving for many years then no load mutual funds and ETF's are you best bet, especially since you are in your mid 30's. You can buy individual stocks but it does take some work.

I found this article interesting (not suggesting you do it) as it just tries to mirror 5 major markets, stocks, foreign stocks, bonds, real estate, and commodities. In 20 years all of these are going to grow, though at different rates at times. So when one drops one or some of the others usually do well but over time they all go up.

http://articles.moneycentral.msn.com/Investing/StartInvesting/StartInvestingWithJust100.aspx

Obviously you guys have way more money but the idea of simple diversity is very broad here.

Consultle... is right about everything but buying stocks. 3k is plenty to buy and diversify. In 10 months you could buy $3000 worth of 10 different stocks, plenty of diversity. Some of these you can buy straight from the company and avoid a broker all together and his/her comission. Just make sure your stocks are from different sectors, at least 5 of these below and 2 stocks from each would be good.
Energy (example XOM and PNY)
Semi-conductors (example TSMC)
Housing (example HD)
Auto (example TM)
Consumer (example P&G)
Airlines (I don't follow this market)
Personal Computers (I don't follow this market)
Technology in general (example APPL)

These are examples and are not exciting companies, they have been around for a long time and most pay some dividend that I reinvest right back in to more stock from that company.

What did Warren Buffet say? to para-phrase, “I'd rather buy great companies at mediocre price rather than a mediocre company at a great price.”

Answer 3

If I were you I would go to a company called Vanguard which has the lowest expenses on their mutual funds than the other institutions. (they are the only fund company that has no board of directors or local offices all over the usa ) so the profits go back to the people who invest which results in lower expenses for the investors.
Put some of that money into mutual funds their and use the Roth IRA's -you can both put in $4,000 each in 2007. What ever you do place them in the Roth for the best tax situation upon withdrawal. ( all savings you make plus any interest is not taxed and you do not have to take any out at 70 years old like you do with regular IRA's. You do have to pay taxes on those deposits of $4,000 placing in the Roth IRA.

Answer 4

Your financial advisor is actually a broker. Only a broker would recommend a variable annuity or stocks. The problem with the variable annuity is that it has high internal expenses, about 2% per year, and you will have difficulty accessing the funds without penalty until 59 1/2. The problem with stocks is that with $3,000 per month you will not be able to purchase enough stocks to be adequately diversified.

You should consider investing your extra $3k a month in index funds, your broker's worst nightmare. Why? Because you don't need him or her to buy them. Consider investing your extra $3k per month at Vanguard. Save yourself the 5.5% upfront commission and buy some diversified index funds. For more information on Vanguard you can visit their Web site:

https://flagship.vanguard.com/VGApp/hnw/HomepageOverview

For some tips on how you might want to invest read this article.

http://www.marketwatch.com/News/Story/GBT1p4JB7BTJZVb5p326gq2

Good luck!

Answer 5

Personally, I have a little mutual fund going, that produces a long term profit. It's not intended for short term turnover. Check into a mutual fund, and see if it might be something you and your spouse might like to invest in. After that, you might want to check into some municipal bonds of some sort.

Answer 6

Also consider this. Does your/this financial advisor seem successful to you? Meaning, if they're so good at what they do, what are they doing working?

Now it could just be that they love what they do, and if that's the case great. However, personally I wouldn't be taking advise from someone financially who is not themselves as financially strong as I wish to be.

If someone doesn't have what you want, they can't show you how to get it.

Answer 7

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