As a general note, 401k + Roth IRA can, under the right circumstances, be good for people. 401k + Traditional IRA can land you in a world of hurt depending on your income level. The tax deductibility of a Traditional IRA contribution phases out for people above a certain income if they also have access to a 401k at work, regardless of their use of said 401k.
Debt types carry greater burdens, regardless of outstanding balances and % rate. Debts should always be paid off in the following order: 1. Any high interest debt (>7%) 2. Credit Cards 3. Vehicle Loans 4. Student Loans 5. Mortgage Its okay to carry a balance on a loan if its low, but I would calculate how much you expect to earn from an investment versus how much you will be paying on the debt principle + interest in the long term and short term. If debt payments > investment earnings over a period (say 36, 48, or 60 months), then you should be paying debt off first. As for reinvesting 401k. If youre young (under 35) and have no dependents, then go for high interest. Put 20% into bonds, 20% into a safe bet like Vanguard Wellington, and 10% into something exotic like FOREX, but the rest you can afford higher risk when you're young. The interest on contributions between 25 and 35 years old is greater than contributions from 35 to 65 years old, depending on what youre doing of course.
I have been watching this since you posted. I was curious if you changed your mind, or if you still feel strongly about it. On Sep 18, when you posted, it was trading at around 15, and is now down to 9. Are you loading up on more, or do you think it's going to be a bust? I am never sure how a stock repurchase program impacts short returns.
I'm still bullish on it and have been buying little chunks as it's gone down. The problem with small caps with a very low float is if the overall market tanks, the stock gets pummeled. The buyback is a smart business move in the long run, but shitty for the investors in the short term. Offering at 15, buyback at 10, can't do much better than that. I'm hoping the overall market doesn't continue on it's down trend it's been on the past few weeks or this could go to the 6's in a hurry. I will say it's terribly oversold and it's market cap is kind of laughable at the moment, but the market does what it wants and best laid plans sometimes don't work out like you intended. Overall, I'm sticking with it. I've got a cost basis of $13.53 so I'm not too under at the moment. My thought of it racing back up to the 20's after the raise is long gone and I'm now accumulating when I can.
BUMP This is a great thread, both for investing as well as other financial advice. Don't want to see it get buried. Popped Cherries, did you ever end up starting that blog?
We've gotten some good feedback on this thread, so Im going to do a monthly theme for anyone that cares. This months topic: "Winning the Lottery and Why It Would Suck." Its would seem like a dream. It would change your life. All your problems would melt away as soon as that check clears to your account You're rich, and you never have to worry about money again. This well-stated Reddit post put it best about how lotto winners end up (although his subsequent advice is a bit too paranoid, so Ill clear it up where it makes sense): Spoiler Look at those stories. One mistake that lotto winners make is that they compare themselves to self-made millionaires and billionaires and assume they are part of the same crowd. They are not, they are a separate subset of wealthy individuals. What separates them from the Mark Cubans, Bill Gates, and a generic wealthy celebrity is forward momentum. They continue to make money and have people working for them that help them invest, divest, and diversify that wealth for them and into new opportunities. The rich guys that do it themselves, the captains of industry and hedge fund managers and stock traders, manage money professionally for a living. They know what theyre doing. The average lotto winner does not have a clue. So what do you do if you win? 1) Do not tell a single person. Not a single one. Spouse, parents, kids, coworkers, close friends; anyone. You need to digest and process the information. Give yourself a week or so to come to the realization that you are now a millionaire. The only person you should tell right away is a trust and estates attorney from a large, reputable law firm. Make sure whoever you deal with has years of experience doing trust and estates for high net-worth individuals. You will need to protect yourself and your assets. They will help you set up a blind trust (if allowable in your state / province / jurisdiction) where they can collect the money on your behalf with your identity never being released. A hedge fund manager in Stamford, CT won a few years ago an did just that. His identity was never publicly revealed. Again, this is a guy who was very likely already wealthy and manages money professionally. 2) The next step is how to collect the money. Most lotteries and lump sum payouts can be taken as an annuity or a lump sum. There are pros and cons with each, the biggest pro with an annuity is that you get more money in the long-run, the Con is that it gets managed by the government and lotto or special revenue commission. As for a lump sum, you get the money right away, but you can figure that about 40-50% are knocked off right away and then another 35$ is immediately tax deductable. So on a $100 million jackpot, you're looking at around $35-40 million when all is said and done. The advantage is, it clears to your account and thats it. Any lottery winner should avoid the the annuity and take the lump sum. 3) Now you have $35-40 million dollars in your account. You're rich and you can pay off all your debt immediately. Go do that. Absolve yourself of outstanding obligations. You also have the ability to quit your job and buy your dream home. Wait on that. You can now let people know some very basic details of your winnings. Do not tell them how much you won or how much you have, but they will get suspicious if you quit your job and start cruising around in a Ferrari. With that, you're going to want them taken care of. Do not discuss any of it with them. Ever. Go talk to that attorney you retained in step 1. They can help you set up trusts, accounts, disbursements, and other information as well as the legal paperwork. If you discuss on your own, or even start discussing it, you open yourself up to litigation risk (i.e. you can get sued). Never ever under any circumstances give anyone cash or a check. 4) Change your phone number, primary email, and make social media accounts private. People outside of your inner circle will start to figure it out too. People you havent talked to in years will come out of the woodwork looking for a piece of the pie. They will have "great investment" ideas, medical bills they suddenly and desperately need help with, car repairs, help with the mortgage, etc. Some crazies will even threaten to commit suicide. When this happens, see that attorney again. They may have someone else in that firm that can help shield you for litigation, because its coming in one form or another. 5) So now you've gotten your money, taken care of the taxes, helped out close family members, and protected yourself. You've bought that dream house, the Ferrari, and spent a few weeks in a Tuscan villa treating yourself. Now you'll think, "Hey I should invest this money, fund some start ups, and double my profits!" Stop. You dont know what you're doing. Unless you have experience in venture capital or private equity, you will be flushing that money down the drain. If you have a desperate need to invest, put around 20% into a low-risk mutual fund. If you invest 20% of 35 million, thats $7 million. An extremely low, 1% annual return on that is $70,000 (at a minimum) for doing nothing except not touching it. Dump another 15-20% into US Treasury bonds or something similar. The rate of return on that is around 2.5-3.5% annually and will yield you around $200,000 over the course of 10 years. So for not touching your money, you've made $900,000 doing absolutely nothing, and these are all extremely conservative investments. Do not make the mistake of thinking you are a power trader and can make a cool six figures on a days trade. The best traders on Wall Street do this rarely, and its only the top dogs that have been doing it for years. You're not going to be Gordon Gecko, so dont bother trying. 6) You've dumped 40% of your money into safe investments. On your $35 million lump sum, you have around $21-20 million left. Now what? Now its up to you. Go on benders in vegas. Jet off to Fiji in a G5. Buy a 100-foot yacht. Buy a vacation home. Now you can go make those stupid VC investments into a start up you like or a soil purification non-profit project in Ethiopia. The rest of the money is yours. Just dont get murdered/kidnapped/mugged in the process.
One note on number 2. I do tend to think the lump sum is the way to go for various reasons, including management and time value of money and so on, but there are two annuity benefits. 1) Very different tax implications for taking a lump 100 million dollar payment in one year vs. spread over many years, 2) it's harder to go *completely* broke when you have annuity payments coming in every month. So if you're seriously not going to be able to handle the influx of cash, an annuity might keep you out of bankruptcy like so many other lottery winners.
Agreed, my post is with the assumption that the winner is somewhat responsible and can handle it without blowing it all on stupid shit in a year. If that's not the case, the annuity is always a better choice. Ceteris paribus, a lump is the better choice for two reasons: 1) it's not wrapped up in the bureaucracy in the long term. 2) You can invest as much as you want and get a higher rate of return. Sitting in some government lotto account somewhere between annuity payouts doesn't earn you interest, it earns them interest.
Yeah, I'm a lump sum fan myself, but if someone just knows they're going to fuck it up, take the annuity. Or, when talking to the lawyer, discuss the concepts of irrevocable trusts for a chunk of it. This is a pretty cool theme, btw. I do think, and maybe I'm biased because of my profession, that a winner should talk to someone in financial services. You can find people who work for commission or fee-based, whichever set of incentives you prefer, and their advice can seriously impact how things turn out. In general, you need several kinds of professionals on your team, all of whom will work in confidence; Lawyer, Financial Planner, and Accountant. These people can mean the difference between perpetual financial security and prison, depending on circumstances.
I'm just a cursory reader of this thread, but if you win $100 million and don't consult those real professionals, you're a real dumbass. My girfriend being a CPA makes taxes and helping with business money a breeze. Not that I'm a millionare though, yet. My finance 101 professor and others basically pleaded with us to start investing in our 401k as soon as eligible and taking advantage of all matching. So I've just been doing that for now. Fuck these student loans!
Ive heard the lotto winners taking the annuity. Saddling themselves with debt that out strips the annuity and doing stupid things like taking those day time TV offers to buy annuities for pennies on the dollar to pay off debts. You can't fix stupid.
Trading vs Investing Most people don't know the difference and use those terms interchangeably. Its funny to hear people say that they bought 100 shares of Disney and consider themselves a "trader." No you're not, bud. So what are the fundamental differences? Quite simply, investing is buying up stock or other financial instruments and holding the possession of them over a long period of time in hopes that the trade makes a profit. Money is made on these in the long term through interest gained, dividend payouts, and splitting. With most blue chip stocks, this is harder to come by and you typically needed a larger quantity of shares to make a meaningful difference to your portfolio. Trading is far more frequent buying and selling of those same and far more complicated assets (mortgage backed securities, other credit default swaps, etc). The key difference between the two is that traders try and make a profit by outperforming the investors by buying and selling more frequently, greater experience, and more background knowledge of the market. Another factor is traders (read: good ones) can make a career out of it. That 100 shares of Disney? I'm guessing you are not going to quit your day job with that goal of supporting yourself on those dividends and a possible 12% return during a bull market. That's also not to say that traders don't hold their assets either. Position Traders could hold on to their assets for weeks, months, or even years which in terms of the market, is a lifetime. On top of that, in the US you need to pass the Series 7 exam if you head in the brokerage direction. No one wants you out there unless you have some concept of the basics. At the end of the day, both traders and stock investors have the same basic goal, which is to make a profit on (hopefully) an educated guess. I'm all for investing and diversifying positions. But keep in mind, you will not beat traders. Traders do not even beat other traders. And no one, absolutely no one, beats the market. If they are beating the market they will be getting a knock on the door by SEC since they are likely committing fraud. The best market makers even have terrible runs and can lose millions. Shops like hedge funds and bulge bracket banks (Goldman Sachs, etc.) have the capital and the leverage to lose a ton of money over time and those traders are at the top of the game and spend all day every day analyzing their positions with the help of sophisticated modeling tools like stochastic oscillators and ever evolving probability equations. By the time you read up on Disney stock on Yahoo over your morning coffee, a trader has already read about the potential development of a new park expansion in Japan and the layoffs used to fund it and has already bought and sold the stock and turned around a .1% profit on a $1,000,000 purchase, earning him 1000 bucks on that specific trade. Then they do it 20-30 more times. And as I said, those are the top traders. On a personal note, traders are some of the most miserable fucks on the planet. Far more than investment bankers too (who still trade, but its a bit different), and that's saying something. One dip can cost them thousands and can ruin their week. And oh boy, you will hear about it if you're in their orbit. Bottom line- if you want to trade- best of luck. Its an extremely volatile field with soul-crushingly low job security. And if you have a good strategy, awesome! The best thing you can do is never tell anyone about it. Stick with investing, the risk is lower but not non-existent. Find some field of business your interested in, buy it up and let it (hopefully) ride.
A good article on blending market and insurance assets for retirement. This is not how most people think about retirement savings, but I do a lot of work in this area and the math is pretty startling when you start gaming it out. http://www.forbes.com/sites/wadepfa...estments-life-insurance-and-income-annuities/
Are there any short-term (12 month) investments worth a damn that aren't risky as hell? I'm saving up for a new car and my plan is to buy one next summer. I already have a decent amount saved already and was wondering if I could do better than the almost non-existent interest I'm getting from holding it in a savings account at my bank without seriously jeopardizing the principle.
A 1-year CD is your best bet. Do not try and throw that money into stocks or something. Might as well go to a roulette table and bet it all on black.
Agreed. I mean, CDs are shit as investments, but they're technically better shit than a straight savings account in the one year timeframe and won't lose money.
So the markets are down, people are freaking out, and it seems like an opportunity to toss some funds in while things are cheaper and wait for the bounce back. So a couple questions... - Where's the bottom? DOW at 13k? 12? Is that even the right trigger to gauge timing? - What should the target(s) be for both long and short term? I'm talking to my broker and my father, but I know this place has some great advice as well, so I'd like your take on this situation.
1) If the DJIA drops to 13k or 12k that quickly, the SEC will probably temporarily halt trading altogether. 2) What industry or company are you looking to buy into? The long and short strategies should be distilled down to that level.
I'm not necessarily looking for a specific industry, per se. For the exception of one chemical company my family has invested in forever, I've generally invested in blended funds (mix of domestic Large/Medium cap with some bonds mixed in) that are typically Medium/Medium-high risk. That said, I'm open to suggestions and things to consider. Seems like it should be a good time to diversify.
Unless your willing to do a ton of research I would dump it into a mutual fund and let it grow over time. Blended funds are usually pretty good. I typically split my portfolio this way: -40% into bonds -20% into large cap -10% into something foreign or exotic, high-risk -20% into small cap -10% I just play around with randomly