What are your most effective investment strategies (income tax, versus)

[Rollingon]

Thanks. Really looking forward to it.

Also others who chipped in with your advice. I will be researching all those options. Aim is to educate myself to a level where I can project and meet targets.

[ansky]

Several people here have mentioned maxing out your 401k. I only partially agree with this. You should at least contribute up to the percentage that your employer matches (assuming they have a match). Otherwise you're essentially throwing away free money.

The issue with completely maxing out your 401k is that you are locking that money up until you are retirement age. If you are a younger person right out of college, you really need to save money that will stay liquid. You are better off using that money for paying off student loans, saving for a down payment on a house, and keeping money liquid in case the worst happens, such as loss of a job or major medical expenses. If you're contributing to a 401k on one hand, and racking up credit card debt on the other, then you need to reconsider that 401k contribution (I have seen this happen).

When you lock up money in a 401k you're going to be stuck paying significant early withdrawal penalties in addition to the taxes if you need to tap into that money before retirement age. Now, if you're already settled in a home, have no student loans or major debt, and have enough liquid savings to get you through any major obstacles, then by all means go ahead and max out your 401k.

[HudsonCoNJ]

Originally Posted by ansky

Several people here have mentioned maxing out your 401k. I only partially agree with this. You should at least contribute up to the percentage that your employer matches (assuming they have a match). Otherwise you're essentially throwing away free money.

The issue with completely maxing out your 401k is that you are locking that money up until you are retirement age. If you are a younger person right out of college, you really need to save money that will stay liquid. You are better off using that money for paying off student loans, saving for a down payment on a house, and keeping money liquid in case the worst happens, such as loss of a job or major medical expenses. If you're contributing to a 401k on one hand, and racking up credit card debt on the other, then you need to reconsider that 401k contribution (I have seen this happen).

When you lock up money in a 401k you're going to be stuck paying significant early withdrawal penalties in addition to the taxes if you need to tap into that money before retirement age. Now, if you're already settled in a home, have no student loans or major debt, and have enough liquid savings to get you through any major obstacles, then by all means go ahead and max out your 401k.

If your expected return on the 401k fund is higher than the interest you're paying on your student loan and credit card debt, then it absolutely makes perfect sense to contribute to the 401k beyond the company match.

[ansky]

Originally Posted by HudsonCoNJ

If your expected return on the 401k fund is higher than the interest you're paying on your student loan and credit card debt, then it absolutely makes perfect sense to contribute to the 401k beyond the company match.

Not if you don't have any liquid savings. The point is, everyone's situation is different so a 401k contribution may or may not be worthwhile.

[CaptainNJ]

Originally Posted by HudsonCoNJ

If your expected return on the 401k fund is higher than the interest you're paying on your student loan and credit card debt, then it absolutely makes perfect sense to contribute to the 401k beyond the company match.

the actual benefit to putting money into a 401k isnt that much. if a 401k was available to me, i would definitely contribute to get any company match but id likely put the rest in a regular investment account.

[Sydney123]

Listening to my financial advisors...

[jdacunha]

ETF’s and Vanguard index funds get 100% of the up side and 100% of the downside. You get the good stocks and the bad stocks in the index. With the volatility that is happening in the market, active management is the way to go. Markets go through cycles and passive management is going to fall out of favor fast.

Maxing out 401k contributions might not be the right way for everyone. Remember if you are 30, you’ll be taking withdrawals @ age 60+. Who knows what federal tax rates are at. The way this country is headed you might have significantly higher tax rates at that time.

I am an advisor and a CFP.

[HudsonCoNJ]

Originally Posted by jdacunha

ETF’s and Vanguard index funds get 100% of the up side and 100% of the downside. You get the good stocks and the bad stocks in the index. With the volatility that is happening in the market, active management is the way to go. Markets go through cycles and passive management is going to fall out of favor fast.

Maxing out 401k contributions might not be the right way for everyone. Remember if you are 30, you’ll be taking withdrawals @ age 60+. Who knows what federal tax rates are at. The way this country is headed you might have significantly higher tax rates at that time.

I am an advisor and a CFP.

The problem with managed accounts is there really aren’t many that consistently outperform the S&P 500. And I’ve never been a fan of paying someone even as they’re losing me money. I much prefer to pick my own low cost investments, but I realize that’s not for everyone.

[HudsonCoNJ]

Originally Posted by CaptainNJ

the actual benefit to putting money into a 401k isnt that much. if a 401k was available to me, i would definitely contribute to get any company match but id likely put the rest in a regular investment account.

Contributing the max $18,500 a year into a tax deferred 401k can have huge benefits. It can put you in a lower tax bracket depending on your income and there’s the obvious savings in taxes now. And if you’re contributing to a Roth 401k you’re taking advantage of tax free growth to protect against whatever tax rates may look like when you retire. I don’t know how you would consider that I significant.

The only downside I see really is the penalty imposed for taking money before retirement age. It’s my money, the government shouldn’t tell me when I can touch it. Although I imagine some people could use the forced discipline

[HudsonCoNJ]

Originally Posted by ansky

Not if you don't have any liquid savings. The point is, everyone's situation is different so a 401k contribution may or may not be worthwhile.

That much I’ll agree with. But I still think it makes sense to contribute even if you have debt with relatively low interest rates.