Essentially, a retirement/emergency fund, that I don’t have to “borrow against” to use.
“Retirement fund” and “emergency fund” should be separate things, because in most cases, they do different things.
As a financial advisor who works under an assets under management structure, you’d be getting the same level of service at account opening with a $25,000 balance as you would with a $250,000 balance. Larger accounts tend to need more ongoing service just as a function of client need, but I don’t see any of my clients complaining I don’t pay them enough attention. I work my ass off for referrals - and I’ve gotten plenty of good clients via smaller account holders. Yeah, I’d love to be in a position where I’m turning clients away because they can’t make a minimum $100,000 deposit, but that’s just not the case. The vast majority of what I do is what I’d call “service work” - helping clients understand what their account is supposed to be doing, finding out what their comfort level is with various levels of risk, and working together to set and attain personal financial goals. Boglehead is a tremendous resource for people who can do it themselves. But there are a lot of people out there who work against their self-interest, and do far more damage to their own accounts than the most egregious management fee ever could.
Though some of those people will still make those same decisions against the advice of the adviser they are working with and fight it the whole way - panic selling even when the adviser tells them to just hang on for instance. And others should outgrow the adviser (and the fees) and move on, but don’t due to inertia (and the paperwork - in my experience - was not devised to make freeing yourself from your adviser easy).
Because the advice you should get is easy -
- open an account with a low fee internet broker (I don’t know who is good because I have sufficient assets that Wells Fargo is no fee for me - Fidelity is supposed to be decent, low fees - you’ll need $2500 in that first deposit - but they will try and upsell you into a relationship).
- Divide your remaining $32k by 18 for about $1750.
- Put that every month into Vanguard’s S&P 500 index fund (VFINX). (Don’t spend the money that is sitting in the savings account waiting!) (You’ll have put your first $2500 there as well)
- Let it sit AS LONG AS YOU CAN KEEP YOUR HANDS OFF IT.
- If you get another windfall, divest with a dividend fund, or an international fund, or a bond fund - always using Vanguard which will be cheap (or another no-load fund - Fidelity has some, T Rowe Price has some).
- Profit.
Another piece of advice. Monthly go to the library and read through Money magazine and Kiplingers - they are like most magazines in that they run the same sort of articles over and over again, and within a year you should have a basic education on personal finance and investing in small bite sized easily understood format.
Dangerosa’s advice is what a newbie should do. Although I would say to open the account with Vanguard directly.
The problem for a newbie investor using an advisor is that it will be very hard to know if they are being taken advantage of. Most financial advisors are just salespeople selling funds their company offers. How is a newbie supposed to know if the advisor is recommending a fund because it is the right choice or because it offers a fat commission to the advisor and the boss is pushing hard to get more clients? It’s very easy for the newbie advisor to lose a lot to commissions and funds with expensive fees. Most newbies don’t realize that the salesperson takes a commission up front from your investment (5%?), and then the fund has fees that come out every year (few percent). That all takes away from any potential growth you may see yourself. But the salesperson will give you nice, warm fuzzies about your investment, so that may be worth giving up some of your profit.
The Vanguard mutual funds are good for newbies since they have very low fees. Their S&P 500 fund is a good choice to start with. It’s made up of a selection of stock from 500 companies across the stock market. The fund will generally track how the stock market is doing and has been a good choice for simple, long-term investing.
I know you didn’t want to put money in an IRA, but do it anyway. You can only put $5500 per year in at a time. If you are in a true financial hardship as defined by the IRS, you can get the money out without penalty. I’m guessing you have little saved for retirement, so you ought to start now.
Do you have any high-cost debt like big credit card bills? If so, it would be worth paying that off since it charges such high interest. Then take the money you had been sending to the CC company and invest that.
I agree with that; buy Vanguard index funds in a Vanguard account. And I think a Roth IRA offers tax advantages while still letting you take the principal out without penalty.
Assuming you do so no less than five years after the first contribution. So again it depends on what the investment objective is.
That is an awesome improvement to my advice, thank you.
Incidentally, if you at any point need to adjust your investments, either to put more money in or to take some out, you want to maintain a balance. That is to say: Divide up all of your investments into some number of categories. It doesn’t matter precisely what the categories are, so long as they’re things that could reasonable behave differently: Different risk levels, different market sectors, whatever. Choose a percentage for each of your categories. Then, every time you put money in or take it out, do so in a way that keeps all of those categories at their original percentage.
For instance, maybe one of your categories is high-risk tech stocks, and you start off with 15% in them. A few years later, when you need to pull some out, they’ve outperformed the rest of your portfolio, and are now at 20%. You should sell off high-risk tech stocks until they’re back down at 15%. Then, a year after that, you’re again in a position to put money back in, and now your risky tech stocks are at 12%: Buy those, back up to 15%. By doing this, you’ll always be buying what’s relatively cheap, and selling what’s relatively expensive.