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Make my money work for me? How to start?

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Money Talk > Investing, Stocks and Bonds

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3door
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Make my money work for me? How to start?  Reply with quote  

So I always hear the phrase, "make your money work for you". So how does one start doing that?

I am 28 with a stable well paying job, no debt except a car and mortgage. I already save and add to my 401K. I'm looking to start investing some of my discrectionary income so that it starts "working for me". Any ideas on how to start that? I figure I have about $1-2,000 in seed money and ~$100 / month to put into it.

My overall goal in the next 5 years or so is to keep investing into it but eventually be able to pull out some (like 20%) of the reinvested or wealth gains every month to add to income and not just save it for retirement.

Thanks! I welcome any and all advice!
Post Tue May 03, 2011 10:34 pm
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oldguy
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quote:
My overall goal in the next 5 years or so is to keep investing into it but eventually be able to pull out some (like 20%) of the reinvested or wealth gains every month to add to income


Welcome. OK, for starters, you are asking about two distinct and opposing goals - wealth-building and income producing. 'Making money work' means that you need to use longterm appreciating assets. Both grow rapidly and with volatility, so the longterm part is essential, it takes 20 to 30 yrs for the ups/downs to ststistically cancel to provide growth with a high probability of success. Eg, the market has doubled in the most recent 24 months, but it has grown very little in the most recent 10 years. So a 5-yr plan would be speculating, not investing. But over all of the 30 yr time periods in our history the market returns 9 to 14%/yr. So, with the power of compounding, your money will grow about 30 times, ie $40k will get you about a million in 30 yrs.

Don't think of investing only as retirement, think of it as wealth building. The successful investers of the last 30 or 40 yrs invested incrementally and built - never selling, never profit taking. So if you can get a job that produces a income stream so that you don't need/want more taxable income, that is a good start. That way you can invest your extra income stream into longterm products. Keep those investments in Roths, 401k, and a taxable account - good to use all 3 account types.
Post Wed May 04, 2011 4:10 am
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3door
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Thank you both of you! This seems like excellent advice. I like the idea of thinking of wealth building vs strictly saving for retirement. I don't have the money right now to invest in the property as you suggested but am interested in finding solid mutual funds, stocks, etc that can be a safe effective subistitute.

A problem I feel like I will run into is the amount that I can invest per month (~$100 right now). Are there places out there to regulary invest that low an amount without getting gauged by $10 fees for stocks and $50 fees for investing in a fund or roth? I've stopped working with my Ameritrade account for that very reason. They take such a large % of the small purchased I'd like to make...Or is that fee worth it in the end just to get the purchase while I can?

Also, I'm not too familiar with the benefits of a Roth IRA...I make too much now to deduct what I invest from my yearly income taxes...Are there other tangible benefits

I apologize for all the questions! I am only an aspiring investor at this point. I thank you for taking the time to respond! It's nice to be on a forum where you don't get heckled for not knowing everything already!
Post Wed May 04, 2011 9:56 pm
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oldguy
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Vanguard has a STAR Fund that might be a good match for you, the minimum entry is $1000 and the minimum addition is $100/m. Their expense ratio is 0.34%/yr - so about $3.40.

Here is their performance chart (sorry about the format), as you can see, they have been around since 1985, averaged 9.82%/yr for 26 years. They have about 88% stocks, 12% bonds - mostly US stocks, some international stocks.

STAR Fund
1 Year 3 Year 5 Year 10 Year Since Inception 03/29/1985
11.49% 4.86% 4.48% 5.85% 9.82%


quote:
Also, I'm not too familiar with the benefits of a Roth IRA...I make too much now to deduct what I invest from my yearly income taxes...Are there other tangible benefits


The salary limit for a Roth is $122,000 for single, $179,000 for married.

There are three major tax status account types - the pretax (401k), the posttax (Roth), and the Taxable.
With a 401k, you avoid the tax now and pay it at retirement. If you are currently in a high bracket, you want this one.
With a Roth, you pay the tax now and get the money tax-free when you retire. If you are currently in a low bracket, you want to pay now and get the money tax-free later.
And a Taxable account is a brokerage account where you buy stocks/funds on your own w/o the restrictions - no age 59 1/2 rules - and you get the preferential capital gains tax treatment.

But no matter what the tax status of your investing is, the return and the 'time' are the keys - and you have 'time'. If you invest $5000/yr into 11%/yr products for 32 yrs it will be $1,400,000. And $1.4M is $1.4M no matter which of the 3 fund types that you keep it in. (I recommend that you use all 3 if elligible - you never know what the Tax Code will be in 30 yrs).
Post Wed May 04, 2011 11:15 pm
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littleroc02us
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If you put $1200 into a Roth IRA and got a long term rate average of 10% you would have 218k. If you double that you have 437k. The fun part is that if you alone max out your Roth IRA every year for 30 years you would have 1 mill.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu May 05, 2011 1:59 pm
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3door
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Thank you all for your help again. This is a great starting spot for me and really gives me optomism. I will do some more research and get back to all of you with some updates
Post Fri May 06, 2011 8:10 pm
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3door
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Hey everyone,

Just wanted to give an update... I've done my research and seriously considered some good looking Vanguard funds, including the one referenced above. However, I've decided to invest in my house at this point and hold it out until the prices start to kind of stabalize.

I do this for personal reasons mostly (my appliances in my kitchen are about as old as I am and sometimes vibrate when turned on) and just needs some severe upgrading. I bought as the prices started to drop (March 2008) so I'm not sure if I will make the money back or not, but it needs to be done so whatever.

The question: Any financial advice on refinancing vs home equity, or just head to a credit union like GE?

I have about 25% equity on orginal purchase price, probably about 15% on current value. I'm looking at a kitchen thats about 8-10% of total current value of the house. I will probably look to borrow ~$15-20K

Advice is welcome! Might not be the right forum but figured you all responded here with great advice, I might as well take advantage. Thanks again
Post Tue May 31, 2011 11:34 pm
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Talisman
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Well, make money work for you is a great saying but I believe it can be achieved only by investing. invest in shares, business or other staf. but do you accurately and thoughtfully. you can higher a money manager who will make the investments for you.
Post Wed Jun 01, 2011 2:12 pm
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oldguy
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quote:
I will probably look to borrow ~$15-20K



LOL - that's the opposite of 'making money work". I'm a landlord, several houses. A kitchen upgrade usually gives you about 50% of the cost - ie, if you spend $20k it will add about $10k to your home appraisal. So your investment return is an instant 50% loss on the $20,000.

In general, I sell the house "as is" and avoid the loss, I can never make a profit on upgrades. But that is on investment houses, you probably have an emotional attachment - the house where you grew up, the house where you want to live forever, etc. In that case, it may be worth it to you to take a $10,000 hit on your net worth.
Post Wed Jun 01, 2011 5:03 pm
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DeonLee
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Identifying chart patterns using technical analysis to provide the best trading opportunities.Penny Stocks follow certain patterns that if spotted early can result in huge gains of money.
Post Fri Jun 03, 2011 8:56 am
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jackmartin055
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Investment is very important for everyone. People should invest some money, so that they can multiple their hard earned money. If someone wants to make safe his future then he should start investing money in some good financial sources.
Post Sat Jun 25, 2011 2:01 pm
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FishTanksInc
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Buying ETFs is a great way to invest.
Post Mon Jul 11, 2011 3:23 pm
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3door
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quote:
--------------------------------------------------------------------------------
I will probably look to borrow ~$15-20K
--------------------------------------------------------------------------------




LOL - that's the opposite of 'making money work".


Good point. Everything you said I have heard and read other places. I have some emotional attachment to the house but not THAT much. I didn't buy it for investment, I bought it more as a nice place to live and build at least some equity. I wiill fix it up but not as much as I would in a perfect world and see what I can get when I decide to sell in the future.

In the mean time I am planning on starting to refinance the house from 5 7/8 to ~4.5% before the S* possibly hits the fan in Washington and interest rates go up. After that I will take the supplmental income I'm making and start investing as some of you suggested. Especially if things start dropping, it might be a good time to buy...

Thanks to all for the advice. I will be in and out with progress. Advice is welcome as always.
Brian
Post Mon Jul 11, 2011 11:15 pm
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