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Make my money work for me? How to start?

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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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coaster
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quote:
Originally posted by oldguy
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.

This is the best advice you'll get anywhere.

How to do it?

1) Spend less than you have coming in.

2) Use the extra to accumulate assets that appreciate over time.

3) The assets that have the best record of consistently appreciating are those that represent owning something of value. They are: land/real estate/property; and enterprise/business/capitalism.
Post Wed May 04, 2011 6:32 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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coaster
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$100 a month is a great start!! You won't believe how soon that amount will build to thousands...... ten thousands ..... hundred thousands ..... millions? Very Happy
Post Thu May 05, 2011 6:04 am
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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.

Ronald Reagan once noted the basic difference between Democrats and Republicans. “Republicans believe every day is the Fourth of July,” he said. “Democrats believe every day is April 15th.”
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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coaster
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Thumbs up on a credit union as a lender.

Thumbs down on spending that much.

I think it's easy to go hog-wild on kitchen redos. Try to get maximum bang for the buck. DIY as much as possible. Skip the granite countertops in favor of laminate. Refacing instead of replacing. Vinyl instead of tile. Lots of ways to make a kitchen look great without breaking the piggy bank. Smile
Post Wed Jun 01, 2011 6:06 am
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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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coaster
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The topic of the thread is investing, not trading. Please stay on topic.
Post Sat Jun 04, 2011 4:49 am
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