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Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
34,785 posts, read 58,251,797 times
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Quote:
Originally Posted by eskercurve
You are in your young 20s. Save as much as you can without overextending yourself ....
But don't let that money sit there! Work it! ... my advice is four simple words. Dollar cost averaging, and compounding.
....
Say you can time the market and make killer returns. A person who can do that has to work VERY HARD to do so and even then, practically, cannot do it more than 1/2 the time. ...
Read the old favorite "The Wealthy Barber", keep plugging away (and saving + dollar cost averaging.) You gotta be IN to play, AND your 401K should allow you adequate investment options to play correctly. You can follow some PAID Market advisories (NOT CNN or MEDIA ) and be smart about when to be in or out, but better to be in than out UNLESS signals are really red from multiple sources. But Get ONE plan and stick with it CONSISTENTLY.
Can you consolidate or roll your student loans into a longer term with low rates? My kids graduated in 2005 or so, and consolidated ~ $12k at 2.7% for 20 yrs, they are in no hurry to pay those off. They each had ~$40k in their ROTHs BEFORE starting college, so guess they could pay loans off if they ever suffer from paranoia.
I too worked 2-3 jobs most my life, bought first home at age 19, and now on about property number 20. Pulled the plug at age 49, tho I should have done so at 35, as planned. Work is really not all that it is pumped up to be .
Don't forget that you are getting a tax break on your contributions, probably in excess of what you are paying in interest on your student loans. No financial adviser would ever advise you to forego 401K contributions to pay down your student loans, if that is what you are asking.
Like stealthrabbit says, look into consolidation at a lower interest rate.
honestly, there is no logical reason to contribute to your 401k except to get the employer match. that doesn't mean don't save for retirement, but you should set up an IRA or ROTH IRA (if you qualify for one) outside of your 401k account so you have greater investment options. the 401k is useful if you wouldn't save the money otherwise.
I'd say, factor in what your student loan interest rates are, and if you should make someextra payments on the higher rate loans, then do it, but don't pull 100% of what you save for retirement. you really need to set up goals, and work towards those goals. how much do you want to have saved at retirement, and how much do you need to put aside per year, assuming x% return, to get there by your desired age of retirement?
answer those questions before you change you contribution amounts.
Right now I think the stock market is way too high and I'm thinking of dropping my 401K contribution to 0%.
If the stock market makes you nervous look over your options in the plan, many 401k plans have a stable value type fund that might give you a rate of return that is higher than your student loan interest rate, plus unless I think you can deduct your student loan interest depending on your income.
In theory, I agree. In practice, most people can't handle the volatility of a 100% stock portfolio. That's where balanced funds come in. Study after study of actual investor returns shows that most people bail when stocks tank.
This is worth repeating. Another way to look at it is comparing stocks to items in a store. When the price of flatscreen TVs come down for Christmas sales people flock to the stores. On the other hand when stocks come down people have the opposite reaction: They sell sell sell. It seems counter-intuitive but when stock values plummet its the same as an item in a store going on sale.
But there are other things to consider. When investing its always a good idea to heavily diversify. There are small cap, mid cap, large cap, red chip, blue chip, and foreign funds. There are investments in energy, commodities, bonds, and so forth. At any given time any number of these areas could be doing well or be in the toilet. But more likely than not if your investments are evenly spread over the entire industrial spectrum then there is a more likely outcome of meeting or exceeding the 7-8% per year annual return over the long run.
Still- if you're not entirely comfortable, you could consider other options. I for example have cash saved up on the side. This is money I plan on using for a house someday. I also have some CDs. Again- these are cash savings that I know will remain at their current value. The rest is in stocks- primarily IRAs and mutual funds. As long as I feed the necessary 10% of my income to retirement, given that I started when I was 30, I should be able to retire by the age of 60. Nothing I've invested in is sexy or exciting. I don't invest in real estate, gold, or any of that other stuff. Just plain old-fashioned stocks in a wide variety of fairly predictable industries and companies.
BUT... in reality please don't take any of my advice as actual advice. Go talk to a financial adviser or maybe someone at an investment company and ask for their advice. They would probably be able to give you more accurate answers. Good luck!
Right now I think the stock market is way too high and I'm thinking of dropping my 401K contribution to 0%. My employer gives each employee 5% of their income into their 401K account regardless if you put into it or not. So there is no matching, there is no required minimum, I get 5% of my gross salary whether or not I contribute. I'm not sure if this is a good idea or not but I'd really like to have the extra ~$350/month particularly to pay off my student loans. Your thoughts?
I personally would not do it. Time is on your side when it comes to investing. The quicker you increase the sum in your 401k, the longer it has to compound. I don't know what the interest rate is on your loan, but you may be able to get better return on your 401k than the amount of interest you pay on your loan. Plus the student loan interest is probably tax deductible.
honestly, there is no logical reason to contribute to your 401k except to get the employer match. that doesn't mean don't save for retirement, but you should set up an IRA or ROTH IRA (if you qualify for one) outside of your 401k account so you have greater investment options. the 401k is useful if you wouldn't save the money otherwise.
I'd say, factor in what your student loan interest rates are, and if you should make someextra payments on the higher rate loans, then do it, but don't pull 100% of what you save for retirement. you really need to set up goals, and work towards those goals. how much do you want to have saved at retirement, and how much do you need to put aside per year, assuming x% return, to get there by your desired age of retirement?
answer those questions before you change you contribution amounts.
This really depends on the funds offered in the plan. My 401K offers some really good funds that I would never want to invest in outside of my plan. Thse would be funds that charge a fat sales charge just to get into them to the guy out on the street, but waive the sales charge for plan participants.
For example:
Templeton Global Bond A (TPINX)-- A top performing global bond fund with 10% - 12% returns over short and long time frames.
I also have share classes of several funds that have super cheap expense ratios that would not be available to non-401K investors unless they had mllions of dollars such as:
Vanguard S&P 500 Institutional Index, wtih a .05% expense ratio
American Funds EuroPacific Growth R5 share class with a .56% expense ratio and load waived.
Allianz NFJ Dividend Value Institutional share class. Not super cheap, but a reasonable .70% expense ratio with load waived. Great long term returns.
So it's really important to know the funds in your plan. Unfortunately, most people are clueless about this stuff. I know I was when I first started investing.
But now with sites like yahoo finance and morningstar.com, it's a lot easier to research funds.
Maybe too simplistic of an approach not knowing your true financial situation... but if your 401k return outperforms the interest rate on your student loan, I wouldn't reduce the contribution.
In theory, I agree. In practice, most people can't handle the volatility of a 100% stock portfolio. That's where balanced funds come in. Study after study of actual investor returns shows that most people bail when stocks tank. Fewer people bail from balanced funds because they are less volatile, so people tend to get better actual returns from these funds than from 100% stock funds because they are less likely to bail out of them at the wrong time. If you can pick one of the better balanced funds that I listed in my previous post (and I'm sure there are others), you can match or beat the long term returns of the S&P 500 with less volatility. Unfortunately, I learned this lesson the hard way. Being 60% to 75% in stocks is good enough, and you still get the extra benefit of dollar cost averaging when your fund is down, as the balanced funds were in 2008 (although less than the S&P 500).
You just have to learn to control your emotions and do your homework.
The high volatile stocks will pay off in the long-run, it has for me.
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) and be smart about when to be in or out, but better to be in than out UNLESS signals are really red from multiple sources. But Get ONE plan and stick with it CONSISTENTLY.
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