Alright, for those of you who have begun careers I have a couple questions. The first involves 401k. I will soon be starting at a company that gives a 6% match on 401k investment. I currently have ~$6500 in credit card debt. A large portion of that debt is at a high interest rate due to cash advance. Long story short on one credit card the minimum payment is ~$175 and the other ~$45. Is it in my best interest to not invest anything into my 401k at first and to pay off the credit cards quicker or is that a bad idea?

If I do not invest in the 401k I am loosing the 6% for a few months and the money will be taxed before I get it. I do invest, it will be a slightly slower repayment time frame resulting in extending interest on the payments. I realize without fully disclosing what my salary is and current living expenses, this is a little more vague of a question.

The second questions I have is, for those of you who do invest, what do you do? I know minimal about the stock market. Should I hire an investment firm (i.e. J.P. Morgan or Lynch) and let the 'professionals' guide me?

1/14/2009 2:12:54 PM

without more information it's hard to say but in general as long as you can swing it you would be a complete idiot to not at the bare minimum take advantage of the 6% match

there are a few exceptions and seeing as how you are a nuke grad you should be able to do the math to figure out if you are in an exception case...

in my opinion you shouldn't begin any other investing until your debt is paid off - since it's so small my guess is that it shouldn't take that long - you shouldn't hire a firm at that point either because of the amount of money you will be probably be investing won't make it worth your while

1/14/2009 2:20:15 PM

I made a thread a few weeks back about getting a job and what do with my money.

Pretty much it was agreed to pay off your debt, max your 401k match %, start up a Roth IRA, and save up.

1/14/2009 2:26:34 PM

6.5k isn't a lot of money - you don't need to hire anybody.
Max your match on your 401k, its free money

And cut your spending until the CC debt is paid. If you're really worried about that CC debt then try to find an offer for a 0% APR on balance transfers and move it to a lower effective rate.

1/14/2009 2:34:39 PM

^

that pretty much covers it.

This is the best time to be putting money in your 401k. The market is down, and by the time you retire in 40+/- years, the large gains up front when the market recovers in the next year or few, will translate to a huge gain from compounding over the years toward retirement.

but ultimately, contribute at least enough to get that 6% match, and make paying that credit card off the #2 priority.

Quote :

"The second questions I have is, for those of you who do invest, what do you do? I know minimal about the stock market. Should I hire an investment firm (i.e. J.P. Morgan or Lynch) and let the 'professionals' guide me?"

I have a natural interest in economics and finance, so I read a lot about economics, investing, etc. If you're going to go it alone, you need to keep up with what's going on constantly. At this point, you probably would be wasting your money hiring an investment advisor. The 401k stuff is pretty straightforward. There are tons of good reads on 401k asset allocation, and if you want to be lazy, the targeted retirement funds really aren't bad at all. Once you've built up some assets and have a 401k, Roth IRA, and want to invest beyond that, you probably want to seek out a fee-only financial advisor if you aren't comfortable with the self directed route.

Get a subscription to Kiplinger's or another personal finance magazine, and maybe fortune or forbes. There's a lot of garbage (don't ever buy a stock based on a magazine article), but lots of good information too.

[Edited on January 14, 2009 at 3:02 PM. Reason : asdf]

1/14/2009 2:54:45 PM

i lost my whole match for the whole year of 2009.... meaning im not putting anywhere near what i used to put in there

so since i already feel like im losing money, i wanna play with some risky investments with the extra money. im not gonna put it toward retirement without the awesome match i used to get. that just feels like a waste, know what i mean?

anyone got any lightbulbs? maybe become a silent partner in a quiznos or something?

1/14/2009 3:13:16 PM

lol, jp morgan or merrill lynch Bank of America won't touch you with a few thousand dollars to invest

1/14/2009 10:13:03 PM

You should be able to contribute your 401k and pay down debt....cut your spending......a 6% match is good....is it vested immediately?

1/14/2009 10:14:10 PM

Invest in something that will inflate as fast as the US dollar

1/14/2009 10:17:00 PM

don't

1/15/2009 5:39:08 AM

Quote :

"Once you've built up some assets and have a 401k, Roth IRA, and want to invest beyond that, you probably want to seek out a fee-only financial advisor if you aren't comfortable with the self directed route."

There are VERY few people who will ever be in this position: that is, free of high-interest debt, and legally maxed out in tax-advantage options (Roth and 301k).

That means someone really has no debt but a house, maybe a car, and invests just over $20k a year (15 for the 401k, 5 for the Roth)....only then should non-tax-advantaged investments be considered.

If you're ever in that position, ever, consider yourself very lucky.

[Edited on January 15, 2009 at 7:29 AM. Reason : a]

1/15/2009 7:20:39 AM

Quote :

"Alright, for those of you who have begun careers I have a couple questions. The first involves 401k. I will soon be starting at a company that gives a 6% match on 401k investment. I currently have ~$6500 in credit card debt. A large portion of that debt is at a high interest rate due to cash advance. Long story short on one credit card the minimum payment is ~$175 and the other ~$45. Is it in my best interest to not invest anything into my 401k at first and to pay off the credit cards quicker or is that a bad idea? "

IMO, if you don't invest in the 401k you'll let that debt linger around and never save any money. That always tends to happen in situations like this. 10 years from now you'll wake up with just as much debt and $0 for retirement savings because 'something came up'. The great thing about 401k is that you don't have a choice.... the money is gone before you can blow it. Not to mention, you're getting an automatic 100% return with your company match, correct? The market is also low right now which is the perfect time to invest long-term. Take the 401k up to 6%. #2 priority is to pay off the debt. Don't sacrifice your 401k to do so, but make some other sacrifices, live cheaply, and get that paid off ASAP. If you want to save more down the road, anything above that 6% towards your 401k throw into a Roth IRA.

Quote :

"Should I hire an investment firm (i.e. J.P. Morgan or Lynch) and let the 'professionals' guide me?"

Not necessary for a 401k. Just invest in about about 5-6 different mutual funds that cover a broad spectrum of the market (Such as large cap, mid-cap, growth, emerging markets/foreign). I think a decent foreign/emerging market percentage for your age is about 15-20%. The rest should go to domestic mutual funds (Mostly invested in U.S. markets). Each choice of fund you have should tell you what they invest in.

If you really don't feel comfortable with what you're doing, your 401k provider will probably have target funds named after the date closest to your retirement. For instance, I have fidelity, and they offer a 'Fidelity Freedom 2040' , 'Fidelity Freedom 2050', etc.(2040 is your expected retirement year). It is a fund in which the asset stock/bond/foreign stock allocation is adjusted for you over time based on the year you plan to retire. If you will retire in 2050, you can put all of your money into a 'Fidelity Freedom 2050' or similarly named fund (Depending on who your 401k is with). It'll adjust what you need to be invested with automatically as you get closer to your retirement year....it's basically an autopilot fund for the ignorant investor. Might be an option to look at.


[Edited on January 15, 2009 at 9:05 AM. Reason : ]

1/15/2009 8:52:40 AM

id invest in the stock market.

1/15/2009 8:53:33 AM

Quote :

"There are VERY few people who will ever be in this position: that is, free of high-interest debt, and legally maxed out in tax-advantage options (Roth and 301k). That means someone really has no debt but a house, maybe a car, and invests just over $20k a year (15 for the 401k, 5 for the Roth)....only then should non-tax-advantaged investments be considered. If you're ever in that position, ever, consider yourself very lucky."

Or someone with a skill set that makes you that kind of money. Which in this region, and with the types of majors/jobs a fair percentage of people on this board have.

1/15/2009 10:35:24 AM

yeah i mean it' not really that high of a threshold to be able to do that (whether or not it's comfortably is up to the person)

you could do it off 75k


[Edited on January 15, 2009 at 10:52 AM. Reason : e]

1/15/2009 10:47:10 AM

Quote :

"Invest in something that will inflate as fast as the US dollar"

They're called I-bonds.

1/15/2009 12:00:40 PM

ALWAYS max out contributions when you have a company match. ESPECIALLY when the market is so low and it's qualified dollars. You are buying cheap and getting free money to buy stocks essentially "on sale" since these are long term dollars.

As for your second question, I am totally biased because of who I work for but I would go with an advisor who works for a firm that does not have products. Large investment shops like Lynch, Ameriprise, etc manufacture and deliver products. Why does that make a difference? They make more money when they sell the products of their shop, thus many of your solutions become "Lynch" solutions (using Lynch as an example!)

1/15/2009 12:05:16 PM

Thanks for all the advice. I will take the advice and go ahead and make the max equal contribution to my 401k (6%), then start paying off the cc bills, then go the IRA route once they are paid down.

Are there any books, other than the magazines suggested, you all recommend I read?

[Edited on January 15, 2009 at 4:42 PM. Reason : df]

1/15/2009 4:38:27 PM

Personal Finance for Dummies


I enjoyed it.

1/15/2009 4:43:37 PM

Quote :

"Are there any books, other than the magazines suggested, you all recommend I read? "

^ That's probably not a bad idea. For beginners who know nothing, it's better to just go with a 'dummies' book or some type of 'All about personal finance book'.

I can't name a good one off the top of my head, but any Library should have plenty for you to choose from

1/15/2009 5:45:24 PM

1/15/2009 8:14:55 PM

You're no help Bradly.

1/16/2009 4:36:52 PM

Quote :

"Personal Finance for Dummies"

That and Stock Markets for Dummies is also good.

I had quite a bit of credit card debt coming out of college, and once I had a stable job with good income, I immediately called a debt counseling service to have that crap consolidated and make it a fixed monthly payment. So much easier to simply have somebody autodraft out of your account, treat it as a monthly expense, and "KNOW" the debt will be paid off over time. If you go this route, find a service that is nonprofit ... otherwise there are plenty of loan sharks out there. That has allowed me flexibility to finance a wedding, upcoming house, etc.

So far as the 401k's go, put as much as your company matches in there, anything additional put into a traditional or (probably a better idea if you are young), a Roth IRA. The "mix" is really a matter of what your short-term and / or long-term goals are. Most good 401k companies allow you to select a "target year for retirement", and will automatically manage your portfolio based on that. I.e. Right now, you would be heavy into stocks, as you approach retirement, it moves to bonds so you don't get screwed if the market crashes.

You are welcome to of course invest your own money. One thing I learned for myself ... there are teams of folks with a BS degrees in Finance, and armies of MBAs who research this stuff full-time. If you think you can do better than them, by all means, go ahead and spend your time doing the same research / etc. they do 40+ hours a week. Myself personally, I'll let them manage my retirement portfolio and enjoy my free time NOT spent in researching this stuff.

Good luck with it. If your company offers free financial advising services, would take advantage of it.

[Edited on January 18, 2009 at 12:53 PM. Reason : .]

1/18/2009 12:52:24 PM

I agree with the book suggestions.

1/18/2009 9:25:30 PM

For all those that are trying to build up a savings account, keep your money here.


http://www.dollarsavingsdirect.com

1/19/2009 7:38:38 AM

bump

7/7/2012 5:02:30 PM

What?

7/7/2012 5:28:18 PM

Thought on Traditional vs. Roth IRA?

Many people suggest Roth because contributions and gains can be withdrawn tax free after 60, and you can contribute for the rest of your life (with no requirement to withdraw at 70).

However, the traditional gives you an immediate tax deduction, which can be helpful for those at the income limit of other tax credits (child, earned income, student loan, etc.). Also, the government has stated that Roth withdrawals will be tax free now but who knows if that will change in the next 20 years.

So which one did you go with and why?

7/7/2012 9:25:57 PM

Basically, if you anticipate being in a higher tax bracket upon retirement than you are now (as it seems many younger people will be), it's the better choice. If you're converting a Traditional IRA to a Roth, you need to be mindful of tax brackets...

[Edited on July 8, 2012 at 10:38 AM. Reason : ]

7/8/2012 10:22:38 AM

^^ depends on what is available to you other places. I have a 401k through work so I go with the Roth IRA for the rest of my retirement savings beyond the 401k cap.

7/8/2012 12:45:59 PM

Quote :

"If you really don't feel comfortable with what you're doing, your 401k provider will probably have target funds named after the date closest to your retirement. For instance, I have fidelity, and they offer a 'Fidelity Freedom 2040' , 'Fidelity Freedom 2050', etc.(2040 is your expected retirement year). It is a fund in which the asset stock/bond/foreign stock allocation is adjusted for you over time based on the year you plan to retire. If you will retire in 2050, you can put all of your money into a 'Fidelity Freedom 2050' or similarly named fund (Depending on who your 401k is with). It'll adjust what you need to be invested with automatically as you get closer to your retirement year....it's basically an autopilot fund for the ignorant investor. Might be an option to look at."

Problem with these funds (and others that aren't basically index funds) have high enough fees that they are not worth it. Considering it is basically a coin flip if a given mutual fund will outperform the market you would be better off investing in an index fund and saving the fee cost of other funds. When you get closer to retirement you can move into safer options and doing that on your own sure beats the cost of paying a high fee rate for something that is about as likely to underperform as over perform.

I hardly consider myself an expert at this stuff but basic math proves the high cost for most funds compared to index funds. When we are talking a couple percentage points in higher fees over the course of 40 some years that is a shitload of money to be throwing away for some fund manager to just hope to beat the market

[Edited on July 8, 2012 at 12:58 PM. Reason : .]

7/8/2012 12:54:14 PM

^ I posted that and agree. Indexes are far superior. However, some plans dont offer them and they dont adjust to safer investments over time. If you are willing to reallocate every 5 years or so, indexes are the better choice. I was assuming the OP would never touch it. 


To someone who has no financial accumen at all and doesnt understand allocation vs. age, target funds solve that...at the cost of growth & expense ratio. Guess it depends on how invoved the op wants to be.

[Edited on July 8, 2012 at 1:44 PM. Reason : Aa]

7/8/2012 1:32:17 PM

Quote :

"However, the traditional gives you an immediate tax deduction, which can be helpful for those at the income limit of other tax credits (child, earned income, student loan, etc.)."

I really never understood this argument. If you are getting taxed at 25% now how is this a valid argument as to why is investing 4K in a traditional IRA now is better than investing 3K in a roth IRA now?

Quote :

"Also, the government has stated that Roth withdrawals will be tax free now but who knows if that will change in the next 20 years."

This is by far the worst argument you commonly hear. The gov could also raise ordinary income taxes to 75%. Then my tax free roth will be looking pretty good around then.


That being said, I invest in a roth IRA and roth 401K because, as previously stated, I'm assuming I'll be in a higher tax bracket in 35+ years than I am now. Since most people only have access to a traditional 401K it makes even more sense to invest in a roth IRA to diversify your taxable/nontaxable investments.

7/8/2012 1:37:39 PM

^that last statement is key.

7/8/2012 2:30:12 PM

Just to reiterate too, if you're not super comfortable picking investments you can basically get a couple index funds to cover most of the market and diversification. Index funds typically perform as good or better than funds where managers try to pick and time the market, plus the expenses are way lower. They won't make you rich by having 70~80% swings but they follow the market so things will tend to trend up over the long term and help you beat inflation.

I've got my Roth with Vanguard but most consumer options now will offer some index funds.

7/8/2012 5:15:15 PM

You guys realize the original OP is from 3+ yrs ago. Just sayin'

7/8/2012 5:24:38 PM

http://www.seekingalpha.com is a pretty good site to stay up-to-date with

7/8/2012 5:44:28 PM