Where to Invest Money Right Now?

[skaredshtles]

I'm sure I have more money than I need to in my EF, but I also don't have a steady paycheck. I could go months with no income. For me, getting 3% in the savings account that I can instantly access is worth more than getting a bit over 4% in a CD for 18 months.

Dayum - where you getting 3% for savings?

[zion zig zag]

What’s the typical penalty for early withdraw from a CD? If memory serves, at my credit union you forfeit the interest earned for a certain time period?


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[oldnew_guy]

I'm sure I have more money than I need to in my EF, but I also don't have a steady paycheck. I could go months with no income. For me, getting 3% in the savings account that I can instantly access is worth more than getting a bit over 4% in a CD for 18 months.

Makes sense to have a large amount of cash if you have variable income, but that probably doesn’t fit the typical definition of an EF.

[Mazderati]

What’s the typical penalty for early withdraw from a CD? If memory serves, at my credit union you forfeit the interest earned for a certain time period?


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Yup. Money can generally be pulled early early it's just that you give up some interest earned.

[Name Redacted]

Lots of people with a Roth IRA that's been open for a while can withdraw up to the original contributions without penalty. Downside is not putting it back in, but if you have EF money sitting someplace and weren't maxing out the annual Roth contribution that's a good place for the "probably won't need it" money.

There are some exceptions but generally a Roth and other retirement accounts have a 10% early withdrawal tax. Not sure what you mean by “open for a while” and the other “If”s in your post. Withdrawing from retirement accounts is the exact thing that you are trying to avoid with the EF.

[klauss]

Dayum - where you getting 3% for savings?

Check Ally and/or Citi

[Mazderati]

Roth contributions can be withdrawn without penalty. Earnings are a different story.

[Mazderati]

Worse than The Lending Tree?

I feel like there is a joke here my two functioning brain cells can't put together.

[jono]

There are some exceptions but generally a Roth and other retirement accounts have a 10% early withdrawal tax. Not sure what you mean by “open for a while” and the other “If”s in your post. Withdrawing from retirement accounts is the exact thing that you are trying to avoid with the EF.

As Mazderati noted, no penalty on Roths up to original principle. Seems like the rules are even more favorable now, but at one point you had to have the account open for 5 years before it was totally free to pull the principle on a whim.

It's better to put it in for a while even if you take some out later than to never put it in at all. Assuming you have EF money but aren't yet maxing out your Roth IRA limit you might as well keep some of it in there.

[::: :::]

Work slowed for us this year. Having an emergency fund of 6mos living expenses was a pretty reassuring thing this year despite previously questioning it yearly the way you all are talking about here.
What didn’t feel good was filling out FAFSA with last year’s numbers and feeling like we were setting ourselves up for a big college funding deficit.
Good news is we’ve signed a few new contracts since Oct 1 so hopefully we are cresting the overly high costs bubble. Reg gas price got down to $4.30 here at my gas station just the other day.

IMHO, the basic steps with “extra” cash:
1) pay down/eliminate debt [except mortgage]
2) have an emergency fund [# of mos up to you, but we do 6]
3) invest in/max out the tax free avenues avail to you via your employment type
4) investing avail cash beyond living costs for building wealth

It seems like most of this thread is for the dentists starting at #4, but the first three affect a more of us on here than one might guess.

[Conundrum]

I feel like there is a joke here my two functioning brain cells can't put together.

No real joke. If you borrow against your 401k, you pay your own account interest on the pay back. If you lose your job, you have a time period to pay it back and if you don’t, you pay income tax and a 10% penalty. Plus it’s not a credit score hit.

If you borrow from lending tree, you probably have 30 days at 30-100% interest, and if you don’t pay back, large fees and a credit score hit.

We have a bunch of people who clearly have financial means to weather a storm arguing over the best boat to be in for that storm.

Financial emergencies are different for everyone and I’m pretty sure a good chunk of the US won’t have four or five different options at any given time to deal with them.

[406]

What’s the typical penalty for early withdraw from a CD? If memory serves, at my credit union you forfeit the interest earned for a certain time period?


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yeah, if more than last quarters interesting earnings, time to find a new credit union. Only thing to "worry" about is better rates. I have been closing some early over the last few months, one nice thing is the interest lost is a deduction on taxes against interest earned. In other words never stress about opening a cd vs keeping extra money in checking. That said I have too much in checking, mostly because S&P has not dropped as much as I expected and got out of paying child care for a few months and just got my bonus.

[rod9301]

Yes. As every good financial adviser says: Try to time the market! Pick individual stocks!

FFS.

Not talking about timing the market.

Having cash increases your options, so you can buy when either a stock or a stock index goes down.

And the more volatility, the more important if to have done dry powder

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[Mazderati]

No real joke. If you borrow against your 401k, you pay your own account interest on the pay back. If you lose your job, you have a time period to pay it back and if you don’t, you pay income tax and a 10% penalty. Plus it’s not a credit score hit.

If you borrow from lending tree, you probably have 30 days at 30-100% interest, and if you don’t pay back, large fees and a credit score hit.

I don't know anything about lending tree. My quip was only a reference to the fact that 401k loan satisfaction may be immediate given job loss.

[J. Barron DeJong]

I’m talking about timing the market.

Fixed it for you.

[goldenboy]

Dayum - where you getting 3% for savings?

Ally. Of course unlike a CD it could go down. Or up again, too.

And yes, my situation is weird and not 100% just an EF, but also "income smoothing" or whatever it should be called.



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[Danno]

Fixed it for you.

To be fair to him, ANYONE who invests in the market beyond dollar cost averaging is trying to time the market. That's what buying a stock is all about, right? So his point, that for the market investor having cash on hand in times of turmoil, so you can invest when you feel the time is right, is trying to time the market but not necessarily in the negative way you're using it.

[old goat]

OK, so ya'll talking about some marginal return plus loss of liquidity as being preferred to cash better not be financing anything other that your house. People love to act real smart with their investing and act real dumb with their borrowing. Payments suck.

This. If you don't need lquidity it's hard to beat not borrowing. And if you think you're in your house long term paying that off early.

[J. Barron DeJong]

To be fair to him, ANYONE who invests in the market beyond dollar cost averaging is trying to time the market. That's what buying a stock is all about, right? So his point, that for the market investor having cash on hand in times of turmoil, so you can invest when you feel the time is right, is trying to time the market but not necessarily in the negative way you're using it.

I don’t see how it’s not timing the market if you’re keeping money out, not earning, with the hopes of putting it in at some better time in the future.

Markets go up over time, so generally keeping money out is going to be a losing proposition more often than not. It’s definitely a gamble to be keeping money out.

But also, if we’re talking about people who are trying to earn a bit extra off the EF, those people very likely don’t have enough investments to be picking stocks and trying to time the market. Just put it into index funds each paycheck.

[ghosthop]

It seems like most of this thread is for the dentists starting at #4, but the first three affect a more of us on here than one might guess.

I was under the impression that this thread was for those of us that have taken care of 1-3 and have spare cash we are looking to set aside for a short period vs. long term wealth building.

Maybe I was mistaken.

Seems like this has turned into the financial literacy thread, which is fine. Anyone want to talk about life and disability insurance for a single earner, high income household? Every time we try to meet with a financial advisor they get fucking frothy at the mouth within the first five minutes of our story. We would happily pay someone by the hour for an objective review of our financial planning.

While I'm making requests I would love to hear the collective's thoughts on advisors vs. just using an accountant and attorney.

[Conundrum]

Individual disability is pretty expensive if you're buying outside of an employer. If there is an employer option, look at the buy ups. Life insurance on your own isn't bad if you're healthy and often a better way to go than the employer's options unless sick and there's a guaranteed issue clause. A good advisor will probably involve an attorney and accountant. Depending on your financial savvy and your accountant and attorney, you might not need an advisor. Basically, pay people when it will cost you more to do it your self.

Mazderati-you're correct. There is usually an immediate payback when leaving an employer with an outstanding 401k loan. I would put borrowing against your 401k in an emergency pretty far down the list of ways to pay for an emergency. I was merely pointing out there are even worse options if that was something one was considering. It's certainly not a perfect solution but better than sleeping in your car. Then again, living on the lamb isn't always a terrible strategy if it's snowing and you have a good sleeping bag and skis.

[goldenboy]

I was under the impression that this thread was for those of us that have taken care of 1-3 and have spare cash we are looking to set aside for a short period vs. long term wealth building.

Maybe I was mistaken.

Seems like this has turned into the financial literacy thread, which is fine. Anyone want to talk about life and disability insurance for a single earner, high income household? Every time we try to meet with a financial advisor they get fucking frothy at the mouth within the first five minutes of our story. We would happily pay someone by the hour for an objective review of our financial planning.

While I'm making requests I would love to hear the collective's thoughts on advisors vs. just using an accountant and attorney.

It sounds like you should find a fee-only CFP and pay for a couple of hours of consultation. That way, they have no financial motive towards steering you to any particular products.

[J. Barron DeJong]

This. If you don't need lquidity it's hard to beat not borrowing. And if you think you're in your house long term paying that off early.

I’m going to disagree with paying down the mortgage early - or at least say it depends on the rate and what you do with the money instead.

My mortgage is 2.75% and fixed for life. The money we saved when refinancing is going into retirement investments, and those investments would be expected to earn much more than 2.75% long term.

Heck, even putting the money in a savings account currently earning 3% is better than paying down the mortgage instead. (Maybe depending on your tax situation.)

[Conundrum]

Kevo did bring up a really good point I hadn't thought of. If you have a larger reserve fund, it allows you to look at your choices differently. I've struggled with paying our mortgage off early or not. I have a low fixed rate but damn would it feel nice to not owe anything to anyone...except taxes of course. Might make future decisions look a lot different too.

[XXX-er]

I don’t see how it’s not timing the market if you’re keeping money out, not earning, with the hopes of putting it in at some better time in the future.

Markets go up over time, so generally keeping money out is going to be a losing proposition more often than not. It’s definitely a gamble to be keeping money out.

But also, if we’re talking about people who are trying to earn a bit extra off the EF, those people very likely don’t have enough investments to be picking stocks and trying to time the market. Just put it into index funds each paycheck.

Post IBM career I bailed on the RE to move to skiing/ drinking beer/ smoking dope/ chasing a woman about one month before RE went in the shitter

then I forgot to re-invest the RE procedes which means I was entirely in cash when the stock market crashed 6 months later

I ended up looking like a fucking RE/ stockmarket genius but my timing of the markets was entirely based on sex booze & drugs which i don't recommend but it worked for me

my point would be that picking the market seems pretty arbitrary