Money Management Thread

[larryselbows]

I have recently received a job offer for what I would consider to be "my first real job". With it, I have received 401(k), bonus, and stock match options from the company. I just want to ask some of you on this board how best to invest. What are your thoughts on 401(k)'s and stock matching? Do you have any other advice?

 

[Dr. Jones]

Congratulations! Sounds like a good opportunity and I'm genuinely happy for you. I'll let someone else attempt to answer your questions as my philosophies are too outside mainstream thinking and not advisable for most. I'm sure there are many here that will give good advice.

Again, congrats!

 

[leftyjace]

Wow. Talk about opening the proverbial can of worms...

401(k) = good.
Stock match = good, PROVIDING that the company is headed in the right direction. just cuz a stock is matched with another share doesn't mean that the shares won't decrease in value in the short or long term.

Other thoughts: You're young, and listen to words of wisdom from someone who is not-so-young. SAVE. SAVE. SAVE. SAVE. SAVE. INVEST. INVEST. INVEST. You'll be glad you did. Oh, and... diversify. And don't be afraid to play it safe until you can roll up your sleeves and learn. There's a lot of things possible in the world of investment and finance. Doesn't hurt to learn.

 

[Scat]

I have recently received a job offer for what I would consider to be "my first real job". With it, I have received 401(k), bonus, and stock match options from the company. I just want to ask some of you on this board how best to invest. What are your thoughts on 401(k)'s and stock matching? Do you have any other advice?

How much do they match on the 401K? 401's can be amazing and the money can add up quite quickly even when the market is not so great. If they match 50% of or your donation up to 5% of your pay you are making money every time you make a donation to the plan regardless of the market. Problem is, you typically have little control where your money is invested beyond being able to choose from a few mutual funds. If I were you I'd contribute the maximum amount to your 401K if at all possible.

 

[Scat]

Stock match = good, PROVIDING that the company is headed in the right direction. just cuz a stock is matched with another share doesn't mean that the shares won't decrease in value in the short or long term.

This!! I worked for a company who's stock plummeted from around $40 a share to .02 a share when they decided to file Chapter 11 bankruptcy. Once bankruptcy is filed all existing stock is nullified and dissolved and new stock is issued. I worked with people that lost tens of thousands of dollars because they had put too much faith in the company.

 

[larryselbows]

How much do they match on the 401K? 401's can be amazing and the money can add up quite quickly even when the market is not so great. If they match 50% of or your donation up to 5% of your pay you are making money every time you make a donation to the plan regardless of the market. Problem is, you typically have little control where your money is invested beyond being able to choose from a few mutual funds. If I were you I'd contribute the maximum amount to your 401K if at all possible.

So matching 50% up to 5% is the cut off? I've heard that you can't access a 401(k) until you are sixty. What are your thoughts on IRA's vs. Roth IRA's?

 

[Scat]

So matching 50% up to 5% is the cut off? I've heard that you can't access a 401(k) until you are sixty.

What they match depends on the company. Some match 100% of your contribution up to 5% of your pay. Some only match 25% of your contribution up to 3% of your pay. You'll need to check with HR to get the specifics for your company.

You can access the money before you retire but there is an automatic 10% penalty and since contributions are made tax free you'll also be on the hook for all state and federal taxes if you touch the money before retirement.

 

[larryselbows]

What they match depends on the company. Some match 100% of your contribution up to 5% of your pay. Some only match 25% of your contribution up to 3% of your pay. You'll need to check with HR to get the specifics for your company.

You can access the money before you retire but there is an automatic 10% penalty and since contributions are made tax free you'll also be on the hook for all state and federal taxes if you touch the money before retirement.

Okay, I see... If you leave a company, does your 401(k) follow you to the next place or will you have multiple 401(k)'s? How would you recommend investing in a general sense? Outside of company offerings.

 

[CONAN]

Find a good stockbroker and/or accountant you trust and roll with them. I used to do all this stuff myself and it went ok but if I would've gone with people that knew what they were doing sooner I'd be a lot better off. Thankfully, we weren't making jack back then. Yes, it cost a little money but it's worth it IMO.

 

[franklin]

Don't stick your nuts in the vice that employs you.

401K--I recently found a dollar cost averaging calculator that claimed a gain from the NASDAQ bubble peak until now. This suggests the strategy is alive and trying to kick when a worst case scenario still has protected wealth.

 

[larryselbows]

Don't stick your nuts in the vice that employs you.

401K--I recently found a dollar cost averaging calculator that claimed a gain from the NASDAQ bubble peak until now. This suggests the strategy is alive and trying to kick when a worst case scenario still has protected wealth.

I have to admit that I am an investing lay-person and have no idea what any of this means.

 

[larryselbows]

What is everyone's thoughts on investing in the company you work for if they match every stock you buy? I will work for a very large, stable company that probably will not see significant growth due to their size, but I think that they won't sink anytime soon either.

 

[Jazz Spazz]

Okay, I see... If you leave a company, does your 401(k) follow you to the next place or will you have multiple 401(k)'s? How would you recommend investing in a general sense? Outside of company offerings.

What is everyone's thoughts on investing in the company you work for if they match every stock you buy? I will work for a very large, stable company that probably will not see significant growth due to their size, but I think that they won't sink anytime soon either.

If you leave you can roll your 401K into an IRA on the personal side, not controlled by the former company. That should not be an issue.

If you see the company as stable, and feel certain their stock will stay stable or grow you should do the stock match. Of course there is some risk involved, but if you invest and they match and the company grows you will have a large profit potential in that investment.

As to Roth vs Traditional 401K investment, the decision comes down to taxes. If you think taxes will increase by the time you will pull out your money, you should to Roth and pay for the lesser taxes now... or if you think your tax bracket will be higher at that point. If you think your tax rate will be lower at that point, put the money in pre-tax and pay the lesser rate later. It is a guessing game. You could split it between the two and hedge it that way if you were really worried about it.

By the way, you should invest in the 401K at least up to the match amount if you can. That is what makes it worth it, especially the way the stock market has been lately. Think of it long term and don't freak out about short term gains or losses. The match is where you will make your money, minus another huge incident like 2008.

Congrats on the job.

 

[Jazz Spazz]

Don't stick your nuts in the vice that employs you.

401K--I recently found a dollar cost averaging calculator that claimed a gain from the NASDAQ bubble peak until now. This suggests the strategy is alive and trying to kick when a worst case scenario still has protected wealth.

I have to admit that I am an investing lay-person and have no idea what any of this means.

Franklin is saying don't invest in the company you work for. If things go poorly, you will go down with the ship.

As to the rest of it, I have an idea of what he's talking about but will leave it up to him to translate.

 

[Hartsock]

I'm in the same boat as you Larry, thanks for asking these questions.

 

[franklin]

I have to admit that I am an investing lay-person and have no idea what any of this means.

Conventional wisdom is to never hinge your retirement on the same company that employs you. If it were to go bankrupt then you'll have the double whammy of no retirement and being out of a job at the same time. Having the option to essentially purchase stock at 1/2 price is pretty bad *** but I'd only consider it as a source of extra income. The only way I'd use it for retirement planning is if I planned on it being a source of income that I didn't need at all and only considered a nice bonus. I'd rather buy it in an IRA that I rolled into a diversified fund sometime down the road. Either that or have it buy me a Corvette in 10 years.

401K--Yes, they are portable (by law) and the transfer fees are limited & reasonable last I checked. Also, many companies will continue hosting your 401k account if you have a minimum of $5000 invested. Dollar cost averaging has always been the go to method, but this has come under fire from the 1999 and 2008 bubbles both popping in such a short time period. The calculator I meantioned earlier says this method is still viable even in a worst case scenario where you started investing right at the prior peak, meaning your returns would have been the lowest possible.

 

[larryselbows]

Conventional wisdom is to never hinge your retirement on the same company that employs you. If it were to go bankrupt then you'll have the double whammy of no retirement and being out of a job at the same time. Having the option to essentially purchase stock at 1/2 price is pretty bad *** but I'd only consider it as a source of extra income. The only way I'd use it for retirement planning is if I planned on it being a source of income that I didn't need at all and only considered a nice bonus. I'd rather buy it in an IRA that I rolled into a diversified fund sometime down the road. Either that or have it buy me a Corvette in 10 years.

401K--Yes, they are portable (by law) and the transfer fees are limited & reasonable last I checked. Also, many companies will continue hosting your 401k account if you have a minimum of $5000 invested. Dollar cost averaging has always been the go to method, but this has come under fire from the 1999 and 2008 bubbles both popping in such a short time period. The calculator I meantioned earlier says this method is still viable even in a worst case scenario where you started investing right at the prior peak, meaning your returns would have been the lowest possible.

Thanks a lot man, that was actually quite helpful.

What does everyone think about renting vs. buying a home/condo/etc.? I have been doing some research lately and from what I can gather, it seems that renting is actually the better investment. Until home prices start to go up again, you will be losing most of your equity to interest if you were to buy a home, whereas renting is a much cheaper option, thoughts?

 

[Jazz Spazz]

Thanks a lot man, that was actually quite helpful.

What does everyone think about renting vs. buying a home/condo/etc.? I have been doing some research lately and from what I can gather, it seems that renting is actually the better investment. Until home prices start to go up again, you will be losing most of your equity to interest if you were to buy a home, whereas renting is a much cheaper option, thoughts?

I have seen people rent for much more than a loan lately. I would buy now while prices are still low, and rates are unbeatable if you can. View it as a long term investment, and it should add value before too long. I don't see the bottom dropping out again at least for quite a while. Just my opinion.

If you do your research, you can still find homes that will be steady and not lose you money.

 

[Hartsock]

I have decided to rent for the next year, or until I am completely comfident that I won't be laid off. I would hate to buy a house and then be stuck with a mortgage and needing to look for work in other areas.

 

[Jazz Spazz]

I have decided to rent for the next year, or until I am completely comfident that I won't be laid off. I would hate to buy a house and then be stuck with a mortgage and needing to look for work in other areas.

Smart move. There is always that aspect of things. If you think you may not have a job, or that you will have to go somewhere else to work, buying may not be the best idea.