where to invest?

[llf51]

So my 401k at work sucks. New company doesnt do match so I decided to opt out of the 401k plan. What is the best way to invest my money. I dont plan to touch it for like 5-10 years. I want to put in 10% of my income.

thanks all....

 

[Wheelman]

All of my money goes to Chris at SOS :biggrin: You can live like a king in your car.

 

[White92]

Serious? Your company doesn't even match? Mine is 100% contributed by the company with 15% of our salary every year. Want me to see if they are hiring? :biggrin:

 

[llf51]

yes my company doesnt match. This is the first time I've heard of it.

 

[Hiroshima]

Serious? Your company doesn't even match? Mine is 100% contributed by the company with 15% of our salary every year. Want me to see if they are hiring? :biggrin:

Yes Please

 

[Hiroshima]

So my 401k at work sucks. New company doesnt do match so I decided to opt out of the 401k plan. What is the best way to invest my money. I dont plan to touch it for like 5-10 years. I want to put in 10% of my income.

thanks all....

Even if they don't match, you are getting a break on your taxes. Assuming that you are in the 25% tax bracket, here are some numbers I pulled from the air, hopefully they make sense.

Say you make 50k a year, and you invest 10% into your 401k. You reduce your gross taxible income by 5k

$50,000 * .25 = $12,500 in taxes
$45,000 * .25 = $11,250 in taxes

$12,500 - $11,250 = $1250 in current tax savings (you do get to pay taxes later when you take it out :frown: )

So your 5k investment actually cost you $3750 in today's dollars.

If you invested $5000 of your after tax dollars it actually cost you closer to $7k *because* of taxes. Figure you earn 8% on that 5k, you make ~$400 in gains. But you have to pay ~$125 of that to Uncle Sam and his brother the State Tax Board, which means your rate of return is really more like 5.5%. Your money now grows slower and will compound a lot slower.

In 10 years at 5k yearly investment at 8% growth (assuming a 25% fed tax rate and 6% state tax rate) would net you $73,000. Of which you invested $67k of your gross income.

If you put that same money into a 401(k) you don't pay Fed or State Taxes on that contribution, and at the same rate of return, you would have $87,200. Of which you invested $50k of your Gross income and you saved $12.5k in taxes during those 10 years.

Unless you need the money liquid, I don't see why you would not invest in your 401 if you have that option. I like tax deferred savings because it grows a whole lot faster than if I have to invest with after tax money. I also like that I can't really get to it, so when I want that expensive exhaust, I just don't buy it.

I can't guarentee my numbers are 100% correct, but I hope they help a little anyway anyway

 

[llf51]

I see says the little grasshopper. What about putting money into Mutual Funds?

 

[Hugh]

Vanguard's S&P 500 Mutual Fund. You'll thank me later.

 

[White92]

Vanguard's S&P 500 Mutual Fund. You'll thank me later.

Care to expand on that for us?

 

[Hiroshima]

Vanguard's S&P 500 Mutual Fund. You'll thank me later.

I am in this also, they have the lowest fees of almost any index mutual fund. Compared to other S&P 500 Index funds, their annual returns are around .25 - .5 % higher than others due to reduced fees. On the overall, the equities they hold are the same, but due to the reduced costs, you get a higher rate of return when compared to other S&P Index funds. Over the years a 1/4% her and a 1/2% there make a big difference.

 

[Hiroshima]

I see says the little grasshopper. What about putting money into Mutual Funds?

I like Tweedy Brown American Value Fund. They are not accepting new clients at the moment, but when they open back up, I would look into them. Their investment philosophy is pretty straightforward, and they have a TON of their own money in their funds, so they are just playing with investor's money. You can download their investment strategy from their website and it is something that a normal human being can understand. Honestly, the crap other investment firms put out as fund literature reads more like "how to confuse and investor in less than 5 seconds". But TB's info packet is very readable.

Here is their website:
http://www.tweedy.com/


Last plug for the 401,..... I still think that if you should be maxing your 401(k). Next year the limit goes to $15k. There is no plan currently to raise that limit (bummer). If the government thinks that people are saving too much (why they think that is beyond me!) they **CAN** lower that limit. There have been rumors that this is what is going to happen. Unless you are near retirement (and based on the original question, I am doubting that) time is your friend. If it were me, I would max how much goes into my 401, regardless of employer match, before the limit goes down. Unless you are already sitting on a pile of cash, or you are near retirement *I* think 401(k)s are wonderful (if you did not gather that already).

Cheers. :smile: