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Congrats on the big promotion/raise. Hope you love the work.
All I can add is that it was awfully nice to take early retirement at 55 with a very comfortable income (from a defined benefit pension plan) and so I would say do what ever you can to maximize funds going toward retirement without being so stingy that you don't enjoy today.
ps: I left the Bay Area and my "hobby farm" is 28 acres in the blue ridge mountains of VA. When I arrived in the BA in 73 Crow Canyon Road was a little two lane country road with farms, 30 years later it was very much different. So do consider the possibility that Morgan Hill, Gilroy may not be what you want several decades from now.
I'd make sure you had 6 months expenses saved up in the rainy day fund.
After that I would put 1-2k a month into an account at Charles Schwab and start doing homework on stocks. I would start with a high dividend stock like MO...think of like like a high interest savings account. You will be amazed how quickly it will grow.
I'm in my late twenties. After 5 years of working in the high-tech supply chain sector and one short month of unemployment, I've got two great offers from high-techs on my plate, and either one would more than double my previous income to around $80K before any bonuses. I feel very fortunate that I was laid off right when these companies were starting to hire again; everyone has told me that the market is strong now for qualified people.
The offer I prefer (because it's permanent with full benefits) has a 6% 401k match, so of course I would contribute at least up to the match. Beyond that, I'm really not sure what to do with this newfound money. I currently rent a comfortable apartment and drive a simple family sedan, and I have no need to upgrade any time soon. We are a same-sex couple, so we don't need to plan for a family. After messing around with my money in the stock market for the past 6 years and mostly losing it, it feels more like a casino than an investment strategy, so I'm not too keen on throwing a lot of money at it. But, maybe with more cash to play with my options will be better.
I figure that if I keep my expenses at the level they are at, I could probably stash away around $30-40,000 a year. That's a good chunk of money to try and find a safe home for. With that in mind, would real estate be the right way to go? Or something else? I would eventually like to have a few acres for a hobby farm in Morgan Hill or Gilroy.
Sonar, I can't advise you on the real estate part so much. I'm glad you got a great job!
If it were me....I'd first put in at least enough to get the full company match. Then I'd make sure I was on track to have a year's worth of living expenses and be on track to pay cash for my next car. Maybe once you get to 6 months' worth of living expenses, you can start adding more to the 401K until you are able to max it out (and yes, I would max it out...see below). Having that cash on hand will make you less jittery about the ups and downs of the stock market...which means you'll be less prone to buying high and selling low.
With an extra 30K, you would have enough money to max out your 401K (around $16,500 per year), and do a Roth IRA on top of it ($5000). That leaves you at least $9000 and as much as $19000 to save for other goals (actually more than that because you get a nice tax break of at least $2000 for maxing out the 401K....so you're looking at 11K minimum for other goals).
The problem you had with the stock market is you couldn't handle the volatility. That's what "balanced" mutual funds are for. They invest in a MIX of stocks AND bonds. The bond portion reduces the volatility and these funds perform better when the sock market is tanking. The top performing balanced funds will likely match or exceed the perforance of the stock market over long periods of time. And even if they don't in the future, you'll still get close. Most of the good balanced funds have had returns of 6% to 8% over the last decade, which was a decade of bad stock market returns.
Some top performing balanced mutual funds to consider for your Roth IRA:
T. Rowe Price Capital Appreciation. www.troweprice.com I put my sister and a friend of mine in this fund and both of them have stuck with it. It had a tough year in 2008, but made up for almost all of its losses in 2009 and had great returns in 2010. It has a great long term track record. As an added bonus, T. Rowe Price's staff are very nice to deal with, too.
I am a mutual fund junkie. If you want to send me a direct mesage with the investment options in your 401K, I can advise you on that. Top performing balanced funds that are staples in 401K plans include:
Vanguard Wellington
Fidelity Balanced
Fideltiy Puritan *T. Rowe Price Capital Appreciation*
Dodge and Cox Balanced *Oakmark Equity and Income*
American Funds Income Fund of America
American Funds American Balanced
American Funds Capital Income Builder
Invesco Van Kampen Equity and Income
If you see any of these funds in your 401K, they are all worthwhile. Pick one and stick with it. The 2 funds with a * before and after their names are the standout best peformers, so jump on one of those if you see them in your 401k plan.
IF ONLY i had invested in balanced funds all along from my late 20s....I'd have sooo much more money now. I moved in and out of aggressive stock funds and "stable value" funds as well inviditual stocks and bought and sold at the wrong times most of the time. Balanced funds are much, much easier to stick with for the long run because of their lower volatility. In short, they're fairly boring. And investing in a fairly boring fund consistently over a long period of time can make you a lot of money!
Fortunately I am a good saver, so I still have a nice 401K balance. But I really lost out on the power of even modest compounding because of my lack of consistency. Don't be like I was!!!!
did your financial planner advise you to be an aggressive growth investor? based on your age, i wouldn't be surprised if they did- it's the typical thing they push on 20somethings. the premise being: "a young person can withstand more risk because they have plenty of years to ride the waves of highs and lows. youth is the time to gamble/learn and build worth (hopefully)." older folks (50s and older) want to preserve what they've got so usually they're called income investors, taking on less risk but growth takes a 'backseat'. you'll also hear the word 'preservation' associated with older investors. i say reconsider re-entering the markets and tell those planner guys you prefer balance over aggressive.
Yeah, I think the operative phrase should be "aggressive enough". A lot of times the aggressive investments don't peform any better in the long run than their more moderate counterparts. And some people will never have the stomach for the aggressive investments, regardless of their age.
I learned this the hard way. I do think a calculated risk needs to be taken, but it doesn't have to be super aggressive. Most people tend to go to extremes....either they're too aggressive or they're too conservative. That's why I like balanced funds so much that invest in a mix of stocks and bonds. As per my previous post, I pointed out that a number of balanced funds have beaten the returns of the overall stock market over the last 15 years.
i think investing in real estate is a great way to make your money work for you (for renting out). You just have to do your research well. Multiunit homes are the best in terms of profit, or commercial units. As long as its cash flow is positive (you collect enough rent to cover the mortgage+tax/repairs) it wont be a big burden and u have yourself a great investment.
For someone making $80k? No, it's not. It's a risky venture, that eats up a lot of time, has variable expenses and often times you end up in the negative. The number of properties that are cash flow positive is pretty small. Also, the guy/girl is in California. Buying an investment property means at least 20% down and the property wouldnt' be cheap. Assuming it's $500k, that's $100k that he/she would have tied up in one asset. What happens when the roof needs to be replaced or a tenant moves out. Sorry, but that's not good advice.
To the OP,
Build the emergency fund first. Get a professional to help you plan and also look at your life goals. Do you want to go back to school at all? Do you like working? Do you want to retire early? Change careers? Get a sailboat? There are 1000's of things that could determine your money answer. Matching the company's 6% and investing that wisely is the biggest thing you can do.
Watch the spending. $80k isn't nearly as much as you think it is.
As you are aware, silicon valley is an unpredictable place to earn a living. One moment you're riding high with a great salary, benefits, and apparent job security for the long-term. The next moment, you're interviewing your articulate, younger, and well-qualified replacement from a foreign land. Layoff is the first option, not the last resort. Also, with increased salary comes increased expectations. I would first make sure that you will able to maintain this position for the long-term before engaging in many of the investment strategies that people are suggesting here.
I think you should save as much as you can until you are sure the new job doesn't offer any surprises that would cause you to make a premature departure.
Excellent advice Lexus. For the first year or so just stash away as much cash as possible and don't get tempted to lock it up in tax deferred accounts where you may have to pay a penalty to get it back out.
Another thing is to keep living just like you were making $40K. Put your money away at the start of the month, and then forget you have it. It's awfully easy to spend an extra $30-40K a year by moving into a better apartment, getting a nicer car, eating out more often, etc. Lifestyles have an amazing ability to adjust themselves upwards to meet your income.
Finally, you'll also want to balance your goal of buying a hobby farm against the benefits of tax deferment. People love to say "Max out your 401K!", but that locks up your money until you're 65, at which time you may be dead or close enough to it not to want to live on a farm. There's also a good chance that taxes will go up between now and then, so you may wind up paying MORE in taxes to give Uncle Sam the right to dictate when and how you can get it back. Before you put that money in there, take some time to consider that you'll be entrusting your fate to the whims of politicians for the next 40+ years.
Sometimes its just better to pay your taxes up-front...
Last three posts have been great. I'm going to contribute up to the match no matter what since that's free money, but I can't deny the importance of keeping money aside just in case. A land buy like I suggested is probably off the table. It would be setting aside an awful lot of money for a property I couldn't even use, maybe for decades. If anything, better to buy a condo that costs close to what I pay in rent..
I'm in my late twenties. After 5 years of working in the high-tech supply chain sector and one short month of unemployment, I've got two great offers from high-techs on my plate, and either one would more than double my previous income to around $80K before any bonuses. I feel very fortunate that I was laid off right when these companies were starting to hire again; everyone has told me that the market is strong now for qualified people.
The offer I prefer (because it's permanent with full benefits) has a 6% 401k match, so of course I would contribute at least up to the match. Beyond that, I'm really not sure what to do with this newfound money. I currently rent a comfortable apartment and drive a simple family sedan, and I have no need to upgrade any time soon. We are a same-sex couple, so we don't need to plan for a family. After messing around with my money in the stock market for the past 6 years and mostly losing it, it feels more like a casino than an investment strategy, so I'm not too keen on throwing a lot of money at it. But, maybe with more cash to play with my options will be better.
I figure that if I keep my expenses at the level they are at, I could probably stash away around $30-40,000 a year. That's a good chunk of money to try and find a safe home for. With that in mind, would real estate be the right way to go? Or something else? I would eventually like to have a few acres for a hobby farm in Morgan Hill or Gilroy.
1. GET RID OF YOUR CREDIT CARD DEBT
2. The banks won't give you a decent % and the stock market is only for the rich. Look for a starter house near your job. That way they know that they can call you when they need someone.
3. Good Luck
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