I would like to open some sort of investment account that I can continue to add small amounts of money for the next 7-8 years. I’m looking to have a nice balance to take a big vacation when I retire.
Right now I have $1000 to open my account. I have a lot of collectibles that have been sitting around my house and I can probably get $5-10,000 out of them. I was going to sell them slowly and just add that money I get to the account. I may also wish to add $25 a pay check to the account. I already have an emergency fund, I put enough in to my TSP, and I have some other savings so I can afford to put money away.
I really don’t know much about investing, I’ve done it before, but really could use some ideas. I’m fine with the idea of losing money, I just have no idea of how to go about starting an account and a good place to go.
Standard recommendation is to open an account with someone like Fidelity and invest in an Index Mutual fund. You can add to anytime you want, fees are low, and many have no minimum initial investment.
What sort of retirement savings do you have at the moment? How old will you be when you go on this retirement vacation?
If this is money for retirement, then open a Roth IRA and put the money in a fund that is based on the S&P 500. A Roth IRA is a kind of retirement account where you don’t pay taxes on the growth. Another benefit of Roth accounts is you can take your contribution amount out if you need. So if you put $100 in and it grows to $120, you can pull out pre-retirement up to your contribution amount of $100. But the IRA is just a type of account. You still need to decide what your money is going to be invested in. A good choice is a fund based on the S&P 500. This is a fund based on 500 stocks and will generally track with the stock market as a whole. You’ll hear on the news things like “The S&P was up 2% today”. If you invested in the S&P500, that means you had 2% growth. But stocks will also go down. They aren’t a sure investment. But over a long time, stocks generally do well. IRA contributions are limited to something like $6500/year. You could contribute up to that amount each year either all at once or from time to time.
If you want to put more than $6500/year into retirement, look into the 401k plans from your employer. I would also recommend the Roth option of the 401k if they offer it. Through your employer, you can put a lot more into the account, but it comes out of your salary. You can’t sell your collectibles and put that money into the employer’s 401k. But what you can do is put big chunks of your income into the 401k and put the collectible income in your bank. The collectible money in your bank replaces the salary that went to the 401k.
A safe option are CD accounts. They won’t lose money. These pay a bit more than a savings account. The money is locked away for a certain amount of time before you can collect. At the end, you get your deposit plus whatever percent of growth it has. The longer it’s locked away, the higher the percent you’ll get. You don’t have one CD account that you put money in. Each time you have some money, you buy a new CD with that money. You don’t have to make investment decisions with a CD. The only decision you’ll have to make is which bank to buy it from and how many years to have it locked away.
Second that. Fidelity is fine, Vanguard is a good alternative.
For long term investments you can’t beat a low cost broad index fund, like a S&P 500.
Many studies have shown that ‘actively managed’ funds hardly ever outperfom the average, and cost more in fees.
I’m a fed so I have a TSP, I do both the traditional and Roth TSP. I will also have a pension and social security. I am hoping to retire before 60, so at most it would be another 10 years. Right now I only have a mortgage, though I will need a new car in a year or so.
Nope, it would just be to take a vacation. I feel I put away enough money right now for retirement, but if I need to I would be able to put more away.
Can you set them for 4-5 years? I usually only see them for a few months up to a year or so.
They have CD’s in many different lengths. I know they go up to 5 years for sure. Maybe longer than that. But even if they are shorter, what you would do is just cash in the CD when it matures and use the funds to buy a new CD. As you get closer to your vacation date, you would buy shorter and shorter term CDs so they would all reach maturity by the time you need them.
And keep in mind you can just use your retirement funds after you’re 59.5. You don’t necessarily need a separate account for this vacation. You can just pile more into the TSP rather than having a separate vacation fund.
And another thing to keep in mind is something called “the rule of 55”. This is a tax law which says if you leave a job after 55, you can have penalty-free access to the retirement funds before you turn 59.5. So even if you don’t retire after 59.5, if you stay at your job until you’re at least 55, you can access the TSP as if you were retired.
How is your TSP invested (G fund? C fund?). Asking to get an idea of the level of risk you are comfortable with. 7-8 years is long enough to accept more risk with your vacation funds.
Do you have a specific amount that is your goal for the vacation, or do you just want to start saving now and determine the cost of the vacation when you retire, based on whatever amount this money grows to at retirement?
I’m looking at the Fidelity website right now. There are available CDs for 3, 6, 19, 12, and 18 months, as well as 2, 3, 4, 5, and 10 years.
The issue with this strategy is that interest rates might crater over the life of your current CD, and the CD that you want to purchase will have a much lower rate than your current CD. Of course, rates might rise over that time as well, which would mean that you’d be better off buying short-term CDs now, hoping that rates will remain steady or climb over the term length of whatever you buy.
It’s always a gamble!
I just purchased $10k (max allowed) worth of Series I bonds at 5.27%. The rate will adjust in six months, hopefully not down to 0%.
Off the top of my head, 5% between cash and bonds, 20% in the L2030 fund, 25% each in the other three funds, the international funds, small companies, and large.
No specific amount, kind of whatever I can put away. I was hoping to have $50k or so as my child support in a couple of years. I already have some money put away for their college.
At least right now, there are decent yielding money market funds. VMFXX is the one I use, but there are many. So via whichever brokerage you use you can buy as much or as little whenever as you want.
The big upside versus CDs is you can redeem some at no loss of earned interest if an emergency should come up or your plans change. That’s not true for CDs; the minimum redemption is the full amount of any one CD, and you’ll forfeit nearly 100% f the interest it did or would have earned to maturity.
The big downside of a fund like that is that it tracks the ~2 year rates and responds quickly when those change. So if interest rates do drop, you don’t have any locked-in future higher rate income. OTOH, as others have said, the problem with CDs is that if interest rates climb, you’ll have locked in a poor rte for some amount of future.
For me those last two issues net to an imponderable zero, so I’ll take the flexibility of a fund over the lock-ins of CDs every time.
Unless you have some kind of specific purpose use for these - you actively use them or think they’ll rise in value on their own or simply just have sentimental attachment and like having them around - it’s usually better to get that money to work earlier than later.
Vagaries of market performance aside, $10000 invested now is generally better than selling them off piecemeal for $2000 a year for the the next 5 years.
It’s more of a pain in the ass for me to sell lots of things at once on eBay. I do get putting money away now, I’d just rather not have 100 things all at once and have to deal with making sure all the shipping and such is correct.
Agreed. If CDs paid a reasonable premium over MM accounts, they might be worth considering.
But they don’t. They are a bit of a scam by banks to get money from people with poor financial education and fear of investing. “Look, you can’t lose money”.
I think with eight years to invest, and assuming you bank with someone fairly large, I’d check into whether they have a “robo-investor” service. These work sort of like the way managed 401ks work- they ask you a questionnaire about risk, then divvy up your investment into the various categories and individual investments based on the results of the questionnaire. They’ll then go rebalance it and otherwise manage it for a percentage fee.
The advantage of doing it through your own bank is convenience- you can set up an auto-deposit from your bank account if you don’t want to direct deposit to it, you can transfer money in and out much like you can between checking and savings, and so forth.
You don’t have to manage individual funds, you don’t have to worry about tax loss harvesting, etc…
Do you have the equivalent of a self-directed RRSP in the states? A self-directed RRSP is a tax-sheltered bank account into which you can deposit before-tax money. Once in the account, you can buy and sell stocks, mutuals, etc. Everything grows tax-free until you withdraw the money, then you pay tax on it as income. Ideally you are putting money in it during high income years, and taking it out later in retirement when your income and tax liabilities are lower.
I find this really useful as I don’t have to make an investment decision every time I want to put money in the RRSP, and I can add to it in arbitrary amounts for no cost.
My self-directed RRSP is full of no-load mutuals, a couple of ETFs, and a few individual stocks. I can buy and sell any time inside the RRSP without any tax implications. It’s great.
If you need the money sooner, in Canada we have TFSAS, or tax-sheltered savings accounts. It sounds like they are similar to a Roth IRA in the states - the money you put in is after-tax money, and you don’t have to declare income when you remove it because tax was already paid on the money. But whatever investment income you get inside the TFSA is tax sheltered until you withdraw it.
I just checked my Credit Union website: 0.05% APY for MM (and also savings), up to 3.4% APY for multi-year CDs (they are also having a special on 18 month CDs - 4.5% APY).
The US “traditional” 401K plan (= not Roth 401K plan) is conceptually equivalent to the Canadian RRSP. Of course there are detail differences on permitted contributions, required withdrawal timings, etc. between 401k & RRSP, but the basic idea of saving / investing pretax money while working to withdraw along with growth and earnings in retirement and pay tax on all that money then as it’s withdrawn is the same.
The US Traditional (not Roth) IRA is also conceptually similar as to taxation and timing of taxation. With yet another batch of different niggledy details. Simplifying mightily, the 401K is connected to your specific employer(s), while an IRA (Individual Retirement Arrangement) has no connection to your employer(s). And your employer can irrevocably deposit their money into your 401k for your benefit, again subject to lots of limits, but cannot into your IRA.
TFSAS is less similar to Roth IRA or Roth 401K than the RRSP is similar to the traditional IRA & 401K. It gets deep quick.