Thread: Investments:
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Old 03-02-2009, 08:18 PM   #5 (permalink)
NoSoup
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Location: Green Bay, WI
Well, first and foremost before putting any money away long term make sure all high interest debt - especially debt not secured by an asset (ie mortgage or vehicle loan) is paid off.

Assuming it is, I would then set up your emergency fund - a pretty liquid account that you can stash a minimum of three months expenses (Ideally six, especially in this economy) away. The reason I say it needs to be pretty liquid is because it doesn't necessarily have to be at your local bank, but perhaps an online bank (ING Direct offers great savings rates and no fees) or even Certificates of Deposit. Be aware, though, that most online banks require a few days to get your money out, but generally it will probably be worth a higher interest rate.

That said - I would highly recommend a 401(k) or similar plan if your employer matches funds. As far as a flat dollar amount vs. a percentage, it doesn't really matter. I imagine that your employer would match on a percentage basis, so that's what I would tend to go with. Although you are paid on a commission basis, overall it's still just going to be X% of your gross annual income - and remember, that percentage will have a lesser effect than the actual percentage because it is taken out before taxes. If you put 6% into your 401(k), you'll likely only see a 3-4% decrease in the net amount of your check.

All that aside, here is what I think based on the limited info from your post -

Being a young, single guy that tends to "spend too much money on crap" I bet you have more flexibility than you think. Consider one technique generally referred to "Paying yourself first." In essence, If you think you can comfortably sack away $100 bucks a month, I'd start out with $200 - take $100 out of each check religiously and put it in whatever account you choose, and don't touch it for any reason. (barring emergencies) I'm betting that you'll be able to find a way to make your monthly budget work without the $200, and that way you won't get towards the end of the month and find rationalizations to whittle the amount you're saving down based on how badly you want that new Ipod or whatever

Your financial advisor and I probably don't see eye to eye on this part, but I generally tend to be more conservative as I grow older - thank you Enron, Worldcom, IM Clone and stupid Washington Mutual.

I'm sure you'll find lots of folks that will encourage you to invest in stocks right now, as they are signficantly lower than they were in recent history. However, with the absolute absence of any economic data that supports the notion we are in imminent recovery phase, I wouldn't rush out to buy stock any time soon. On a personal level, I am banking my cash until I see some data to support that the stock market will be on an uptick, then I'll probably snag some up. I very well might miss out on a few percentage points of gain, but I'm limiting my losses in the meantime - to me, at least, it's worth it.

If you do end up investing in stocks now or in the future, I do recommend Sharebuilder - it's a great resource for long term investors that don't necessarily care about the day to day prices. I believe that once you choose what stocks you're going to buy, they purchase in bulk every Tuesday - so you might have to wait a few days for the stock to actually be purchased, and the price may vary slightly, but ultimately a few cents in stock price won't matter over the long term, and the fees are very reasonable - I think it's $4.

Regardless of what you decide, congrats on starting to save money early - I think a lot more people right now are wishing they had done the same.

If you have any more questions, let me know
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