Where is the best place to invest money needed BEFORE retirement?
With smart money management, there’s an outside change Hubby and I will be able to contribute enough to our 401(k)s so that we can possibly retire in our mid-50s.
However, retirement account money can’t be tapped until a certain age. Since we hope to retire in our mid-50s, does it make sense to stash a portion of our money in an account we CAN tap at that age?
If so, should we choose a Roth IRA (so we can withdraw contributions if we retire in our mid-50s), or should we choose a regular investment account?
Thanks for any advice/guidance!
After you retire you can roll-over your 401k into an ira and take early distributions from your ira. There is no penalty is you take substantially equal periodic payments (SEPPs) which would be approximately 5% of your ira per year until you turn 59.5 ( but at least for 5 yrs). After 5 years you should be able to take as much or as little as you want to but it would probably be best to use % from life expectancy table. Once you turn 70.5 you have to take required minimum distributions(RMD). Read IRS rules and see their life expectancy chart.
why not open lots of companies? or you can choose the same regular investment account.
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After you retire you can roll-over your 401k into an ira and take early distributions from your ira. There is no penalty is you take substantially equal periodic payments (SEPPs) which would be approximately 5% of your ira per year until you turn 59.5 ( but at least for 5 yrs). After 5 years you should be able to take as much or as little as you want to but it would probably be best to use % from life expectancy table. Once you turn 70.5 you have to take required minimum distributions(RMD). Read IRS rules and see their life expectancy chart.
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This is what I am doing. I retired at age 53 (2 years ago). I think Vanguard is the best place for IRA and they are very helpful to explain things. http://www.vanguard.com
Max out the Roth IRA, and also open and invest in a traditional account. I don’t think the Roth is going to provide you enough until the 401k kicks in, but I dont know a) how old you are or b) how much you need to live on.
Your best bet is to talk to a financial professional from a reputable firm who can look over your income and accounts to make sure you are doing this properly. Yahoo is not the place to be betting you future on.
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you do not want to open an roth ira if you are going to retire before 59.5 because you will recieve a 10% penalty for early withdraw just like you would with a 401k. Except the roth ira does have one advantage you can withdraw the money you deposited and not any accrued interest so if you deposit 20,000 in your roth ira over 5 years and the account is worth more than that you could withdraw the 20,000 without penalty by the way max contribution to any ira is 4,000 per year if under 50. so if you could live of the money you will deposit and not any of its interes then maybe an roth ira could be right. but the most likely is that you should open a regular brokerage account the only problem with this is that you will need to pay taxes on capital gains and dividends.
I am assuming you are not market gurus so You will probably want to invest in mutual funds basically that is what your 401k is, a selection of mutual funds if you really like the funds you have your 401k in you could probably invest in these same funds through a brokerage account. so if you do like your funds find out the name of them and their ticker symbols on a mutual fund the ticker symbol shoud be 5 letters long and end with a x open a brokerage account and buy additional shares of these funds using their ticker symbols other wise if you want different funds I suggest sit down with a financial advisor and let them know your objectives and risk tolerances such as do you want to invest in more volitale foriegn funds which tend to have higher returns in up markets but also have higher negatives in down markets. If you do sit down with a financial advisor remember they are sales men so at the same time they are helping you they may want to put you in a fund that puts the most money in their pocket. so make sure that they do not put you in a fund with a load fee of anymore than 6% and i would aim for a low load fund such as 3.5% or no load. now a no load fund will have a trade commision on it. A broker can not charge a commision on a load fund so it is up to you to decide whether to pay a sales load or commission for example If you put away $100 a week a load of 3.5 would be $3.50 or you could pay a commission anywhere from $10-80 with a brokerage commission so unless you are putting a large amount away a low load is better than a commision.
Now back to taxes you will pay a capital gains tax when you sell your shares at a higher price than you purchased. Capital gains are accessed only when you sell your share so if in one year the shares of the fund increase from 10 to 12.50 as long as you don’t sell them you will not pay taxes on them as they increase but only as you sell them. Dividends will be taxable though as income but your dividend probably wont be more than 1 or 2% gain on your funds.
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In my opinion I would continue to invest in your 401K and take advantage of employer match. If your company matches the first 5% of your deposit then make sure you put in 5%. Second, I would choose a regular investment account more specifically a index mutual fund from Vanguard. One for sure that I would get would be "The Total Stock Market Index" which tracks the Wilshire 5000 (basically all stocks). The other would be "Index trust 500" which tracks the S&P 500. The reason for index funds? No sales load for one. The fees that the fund charges is the lowest in the business (.18% for the Index 500 and .19% for the Total Stock Index). They also trade so few stocks in the fund that there is little or no capital gains to pay taxes on at the end of the year. They do pay dividends put they are taxed at a lower rate so once again your tax bill will be small. The bottom line is keep as much money working for you and not a fund manager or uncle sam. There is a book called "Common Sense on Mutual Funds" by John Bogle . It will explain how fees really cut into YOUR profits. Once you retire in your 50’s vangaurd offs a mutual fund called "Vanguard GNMA Fund" It currently has a dividend yield of 5.17% with dividends payed monthly. It will provide a nice steady income to pay for all your retirement fun.
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Still invest in the 401 K but for income; depending on what level of risk you want to take,;I would suggest the forex market I am in an investment club whereby we invest in the forex market, and we see an average of 5.3% return per month so it is nice to have an extra amount of money above what retirement pays for. If you would like more information write to billone44@yahoo.com
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Hi,
If I were young, I would be investing in small cap growth mutual funds or stocks. Go here for excellent low cost advice (http://www.aaii.com/aaiiportfolios/commentaries/stockportfolio/200701comment.cfm).
Don’t be alarmed at the low cost – it has some of the best financial advice on the Web.
If you have lots of time before retirement the magic of compound interest will just keep building and building. It really works and if you keep investing and re-investing your proftis every year, in 10 or 15 years you will be surprised at how it mounts up. In 30 years you could be a millionaire which probably won’t amount to much in 30 year owing to the the ravages of inflation. But stocks are a good hedge against inflation.
By that time you may need a money manager to manage your money – probably before when you reach the $500,000 mark. Heck! If you have achieved that much, you probably don’t need a money manager – you are the best judge of where to invest your money by that time.
And that’s the primary reason to keep investing in small cap growth stocks – they will flog inflation to death.
When investing in mutual funds, select the no-load funds only. Do not invest in mutual funds with a "load", an up front commission that you have to pay before when they sell you the mutual fund. Some charge as much as 10% which is a rrip-off. Many studies have shown that the no-load funds do as well as the load funds and sometimes a lot better.
Look at the AAI Shadow Stock Portfolio. I would try and emulate that portfolio if you want to invest in stocks. It was up 25% as of November 2006. The Vanguard Index fund is only up 14%.
AAII has some of the best financial advisers and the cost is very low. They have excellent guides and advice.
You may need a broker so go to e-Trade or Scottsdale who have low commission rates.
Do your own due diligence. Your own ideas are the best. Do not depend on someone else to select investments for you. Learn about investing so you don’t have to ask what stocks to invest in.
Be self reliant.
Remember what Emerson said: A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. With consistency a great soul has simply nothing to do.
Find stocks that have steadily rising net profits (earnings), low debt, and good P/Es, lots of cash, companies buying back their stock..
What interests you? Find stocks that pique your interest and passion.
You need fast growing good stocks with good earnings and in good sectors. You need to learn more about the stock market before you even think about investing in it.
The stocks world is divided into 12 sectors such as energy which chevron belongs to. It is next to last in the sectors list today.
Technology is numero uno, but things can change in a new york minute, but within the sector, the fastest growing are computer services, not Microsoft. Then, Electronic Instruments and controls. Next is computer storage devices.
The next hot sector is Healthcare, but heed the warning below. Go here for sectors: (http://clearstation.etrade.com/cgi-bin/Itechnicals?Event=srp&Section=redge&Refer=/redge.html)
The best software is Vector Vest if you can afford it. It has sector investing.
Here is a free Web site for charting stocks: (http://www.incrediblecharts.com/).
First of all, stay away from "professional brokers" and tips coming to you via e-mail or friends and acquaintances. And tips at Yahoo! Answers. And e-mail tips. Do your own due diligence – don’t rely on someone else. Read Emerson’s essay "Self Reliance.
Hey! They will say anything to get you to buy their junk. If it’s too good to be true, it is.
Remember this, they are just sales people trying to sell you what their firm is pushing. They are not security analysts or financial planners, not even financial advisers. Trust me, I know from experience that they cannot be trusted especially with a million dollars. You risk losing it all. A million dollar account is known as a "whale" and they would love to get their greedy little paws on it and suck it dry. They just want to make commissions on what they buy and sell for the suckers, err…clients..
Get this book: The Market Gurus: Stock Investing Strategies You Can Use from Wall Street’s Best (Paperback)
by John P. Reese (Author), Todd O. Glassman
Risk avoidance is the name of the game.
Remember, the harder I work, the luckier I get.
Penny stocks are highly speculative. I would avoid the ones under a dollar a share. For example, Best Buy started at less than $5. So there are some good companies, but it takes a lot of digging to find the good ones. You are looking for companies with good earnings, little debt, low capitalization, and good P/Es. For stocks under $5, very few will meet these requirements.
Stay away from the pharms unless they have patented drugs – do not invest in generic pharms, no growth there.
Check out which business sectors are the most popular and invest in the companies in those sectors. The number one, two and three are: technology, health care, and cyclicals (retail). These change periodically so keep current.
Go here for a list of growth stocks: http://www.thestreet.com/_googlen/newsanalysis/ratings/10345212.html?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA
There are these lists all over the Web – you pays your money and takes your chances.
Watch CNBC, but don’t pay too much attention to the talking heads, except for Jim Cramer, the wild man – but he tries to teach you how to invest and has some great advice.
Get Jim Cramer’s Real Money: Sane Investing in an Insane World by James J. Cramer
Listen to Jim Cramer on CNBC.com
Go to Clearstation for quotes and tutorials on investing at (http://clearstation.etrade.com/). Sign up is free. Look up a few stocks. Do their tutorials. Check out the sectors.
Get this book: Value Investing: From Graham to Buffett and Beyond (Wiley Finance) by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, and Michael van Biema.
Another good book: The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of (Motley Fool) by David Gardner, Tom Gardner, and Selena Maranjian
Jim Cramer’s Mad Money: Watch TV, Get Rich by James J. Cramer and Cliff Mason
I Want to Make Money in the Stock Market: Learn to Begin Investing Without Losing Your Life Savings! by Chris M. Hart\
Sensible Stock Investing: How to Pick, Value, and Manage Stocks by David P. Van Knapp
Stock Investing For Dummies (For Dummies (Business & Personal Finance)) by Paul Mladjenovic
All About Stock Market Strategies : The Easy Way To Get Started by David Brown and Kassandra Bentley
The Motley Fool Investment Guide and their Web site (http://www.fool.com/).
The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks by Dan Holtzclaw
How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition by William J. O’Neil
Trading for a Living: Psychology, Trading Tactics, Money Management by Alexander Elder
Big Trends in Trading: Strategies to Master Major Market Moves (A Marketplace Book) by Price Headley
Extraordinary Popular Delusions & the Madness of Crowds (Paperback)
by Charles Mackay (Author), Andrew Tobias (Foreword) This book talks about the Tulip craze in Holland where people would mortgage their homes to buy Tulip bulbs. Same thing happened in 2001 – 2002 with the Internet bubble that brought the stock market to its knees. The dot com companies were the Tulip bulbs.
Buy Investors Business Daily. It has lots of tutorials and I like it better than the stodgy Wall St Journal.
Money Game by Adam Smith
Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics) (Hardcover)
by Philip A. Fisher. Recommended by Warren Buffet who took $100,000 and grew it to $34 billion!
Value Investing with the Masters by Kirk Kazanjian
Valuegrowth Investing by Glen Arnold
The 5 Keys to Value Investing by J. Dennis Jean-Jacques
The Intelligent Investor Rev Ed. (Collins Business Essentials) by Benjamin Graham. Warren Buffet was his student at Columbia.
The Money Masters by John Train
The Bogleheads’ Guide to Investing by Taylor Larimore
Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor by John C. Bogle
Why Smart People Make Big Money Mistakes And How To Correct Them: Lessons From The New Science Of Behavioral Economics by Gary Belsky
Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week! by Phil Town . See his Web site at (http://www.ruleoneinvestor.com/). Free sign-up. I got the book at the library.
Listen. You don’t have to spend a lot of money on these books – most can be found at your library and those that your library doesn’t have they can usually get from other libraries in your state.
Most of these books talk about stock and mutual fund investing, but for a good introduction to other forms of investing Gerald Appel has a great book called Opportunity Investing – How to Profit When Stock Advance, Stocks decline, Inflation Run Rampant, Prices fall, Oil Prices Hit the Roof and Every Time In Between.
First, Break All the Rules: What the World’s Greatest Managers Do Differently by Marcus Buckingham and Curt Coffman Not a book on investing, but it’s a nice segue into the next book.
Now, Discover Your Strengths by Marcus Buckingham and Donald O. Clifton
Go Put Your Strengths to Work: 6 Powerful Steps to Achieve Outstanding Performance by Marcus Buckingham
Finding your strengths is important when investing. These books teach you to build on your strengths, what you a good at. Everyone is good or passionate about something. Why not get better at what you are good at?
Another good book is: Opportunity Investing: How To Profit When Stocks Advance, Stocks Decline, Inflation Runs Rampant, Prices Fall, Oil Prices Hit the Roof, … and Every Time in Between (Hardcover)
by Gerald Appel
Most mutual funds do not even keep up the the return on the S&P. That’s like 99% of them.
Vanguard Index funds are a no brainer.
A CD is better than a savings account. They range from six months to several years. You cannot touch your money tho until the time limit is up.
Check out this Web site on Direct Investment Plans where you can buy shares directly from companies: (http://www.fool.com/School/DRIPs.htm). Usually no fees and you can buy one share at a time.
Bonds are probably the safest. But they are not for the young. You might try a bond fund. They might return 5 or 6 percent. At 5% a million would return $50,000 a year – not a bad income. Remember, you have to pay taxes on the $50,000.
There are also municipal bonds and the income from them is taxfree especially if you buy them in a state that offers them, but they only pay about 3%, but it’s mostly taxfree.
Look into Fidelity sector funds. Buy the top three, then in six months look how they are doing and if not so hot, select the next three that are best. Do this for a few years and you will make lots of money.
Kindest Personal Regards,
Walt Brown
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P.S. This is a life-long learning process. Reading these books and applying the rules to analyzing stocks that may be good It takes time. Be patient and keep reading and listening. Don’t be a sucker and follow someone elses advice. Be your own man or woman. Depend on no one except yourself. You can only get smarter and stronger that way.
P.P.S. Internet has lots of good stuff, for example (http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:moving_average_conve
Stockcharts.com is very good and their discussion of MACD is one of the best, barring its originator, Gerald Apple, but now we are getting into Technical Analysis and that is not for beginners. But it is an important factor in finding good stocks that are going up and growing. Remember, tiny acorns grow into mighty oaks.
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