I mean, this is just entering "cosmic joke" territory.
I don't know what ETrade is, but I've seen over 10 billion ads for it.
I keep my money in a savings account that gives me 0.3% interest per year. Plus the stock in a megabank that I got in my grandfather's will.
Speaking of buying the wrong thing, does anyone need an extra bottle of conditioner?
Becks spent all of 2006 preparing for her exciting new career as a mortgage broker.
6: You sold your hair to buy a watch chain for the person who bought it for you?
5: what the hell are you doing in a 0.3% account? Even ING is still 4% ish.
Ooh, financial advice thread! Please give me some. I have no idea what to do with money. I don't have that much, but enough that it should be somewhere other than where it is.
I find keeping it in the sugar canister works well.
Yeah, I need some advice on finding the form where you can switch the minus sign to a plus sign in your net worth.
Chris Rock told me that putting your money in books would keep it safe from theft by African-Americans. But don't bake it in the pound cake.
Guns. Lots of guns. And ammunition. After the Peak Oil Apocalypse, you'll need to fend off the mutants. Or zombies.
2008 is gonna be such a trip. There are entire generations who have not experienced a real recession, and current economics/globalization iss almost dependent on the "Great Moderation."
Not to speak ill of anyone, well, I will anyway tho not very. Hi Brad. The attack on Bob Herbert may have been because such a widely distributed piece, negative on the economy, actually using the word "recession", could panic the markets and consumers.
It has been a long time, but I can remember when economists and politicians were terrified of what people say. It is a negative leading indicator.
I think there's some truth to that, bob. It's been a long time since we've had a real consumer-sentiment led recession.
I have a theory, here, that all the tax-deferred savings instruments are very psychologically bad in terms of letting people develop sensible money-management skills.
I've got a whole bunch of money in various IRA/401K/tax-deferred college savings whatever they're called things, and I'm sort of leery about messing with any of them; I'm not quite clear about the procedures for moving them around within the limited options I'm allowed by the structure of whatever instrument it is, and I'm afraid of screwing up and incurring tax penalties if I do something tricky, so I end up putting money in some sensibleish looking stock fund and then forgetting about it. And I don't save enough to be putting away money outside the amount of tax-deferred stuff I'm entitled to do. So I end up with a fair amount of money invested in equities that I'm very nervous about, and no feeling that I'm building up investment skills.
(This has been an episode in Problems That Make Me An Overly Entitled Tool, I believe.)
The ING accounts are great. I like having everything online, and their rates are excellent. I just opened a checking, yes, checking there today that gets 3.45%. At this point, my physical bank is just serving as a place for me to deposit my money before I transfer it to my ING account. I have a savings with them too that gets 4.2%.
17: Along similar lines, I'm worried that I'm too good-looking. There are so many women vying for my affection, and I don't want to hurt anyone's feelings.
17: A habit of putting money into sensible instruments that are difficult to withdraw from sounds like a pretty good money-management skill to me. What's the problem?
See, I was going to move everything to E-Trade because their rates are slightly higher than ING. But apparently they're going bankrupt, so.
I've been wanting to set up an interest-bearing checking (that had been the E-Trade plan) but, man, it's such a pain to change all of the direct deposit and bill pay stuff. They sure get you locked in well with that.
putting money in some sensibleish looking stock fund and then forgetting about it
That's what you're supposed to do, LB. Hold.
Once I get some savings built up (I have an automatic deposit into my ING savings), I'm going to put it into an indexed fund, because The Fool tells me too.
Actually, that's a really great website for a beginning investor/money manager trying to figure out what the hell to do.
20: There's a big difference between sensiblish-looking and actually sensible, or there can be, and I don't know which side of it I'm on.
So, is ING going to go bankrupt too? Their model seems to be unsustainable in a non-nonsensical economy that isn't built on the constant appearance of mysterious new wealth. Or maybe I'm trying to rationalize my staying in the "25% virtually interest-free savings account, 75% stock in one company" investment portfolio despite reading all kinds of financial advice that advised me to do the exact opposite.
Also, my mom opened an account for me with USAA and is strongly urging me to invest in various USAA things, for unknown reasons. What's special about USAA?
usaa is only open to members of the military, their spouses or children, or spouses and children of current members. this means they don't have big marketing expenses and not a lot of churn. i have them for insurance (via grandfather), and have zero complaints.
also, brokerages going bankrupt usually doesn't affect people who have accounts there (that i'm aware of).
ing's model is probably to get you to deposit a smallish amount of money by offering a high interest rate, and then get it back somehow on fees or whatever.
not sure that their mutual funds are any good though.
Sound like it's time to start the Unfogged hedge fund. Actually, I wonder if the net worth of the Unfoggetariat as a whole is positive or negative. I'd bet negative.
I'm with USAA. They're great. Best banking website evar.
An online savings account with HSBC has 4.5% apy, but there are some downsides regarding withdrawal IIRC.
27: i'd bet positive, depending on how you define unfoggetariat.
Actually, I wonder if the net worth of the Unfoggetariat as a whole is positive or negative. I'd bet negative.
But it's my understanding that employees of military contracting companies have free rein to defraud the government of infinite amounts of money with no possibility of repercussions. Thus even one of those would cancel out all the starving losers.,
25: There don't appear to be fees, so no.
The thing about these online savings accounts that I think enables them to give you the high rates is that once you deposit, your money isn't immediately available for withdrawal. Like, I had a scheduled transfer from my regular checking to my ING checking on the 5th, and the money isn't available for me to withdraw until the 13th.
Which, given that it's supposed to be a savings account, and not all of it immediately liquid, is just fine by me.
depending on how you define unfoggetariat
Right, could be regular commenters or all regular readers. You're right that it might be positive for the regulars, since a few people with a lot of money could make up for all the grad students. Not sure about all readers.
ING checking s/b ING savings. I think the checking account is more liquid.
I'm (you'll be stunned to learn) all about the socially responsible investing. Among other investments, I have a couple of CD's with First Trade Union, a bank owned by the Carpenters (and I ain't talkin' Karen). My $ is used for low-income, union-built housing. Can you see the halo shining through the internets?
Is USAA as good for banking as they are for insurance? For some reason, the latter is all I use them more.
24: I don't think it's unsustainable at all, just the percentages are. People who don't have `real' money have been consistently getting fucked by their banks, which is why they banks have such nice bottom line in recent years. This `oh, you're savings account only makes 0.5% unless you have $30,000 in it is a straight rip off'. I don't actually use ING but for anyone who can't get a better rate than that, I don't see why you wouldn't. Particularly for a slush/emergency fund.
Roth IRAs and the like are the most sensible thing for most people, but all of this really depends on what your lifetime earning profile looks like. Deferred income tax is only deferred, after all. Sometimes eating capital gains or whatever is going to be a bigger gain. Much like buying a house isn't always your best bet. I don't really think there are any universally good rules.
Things are going to get ugly for a while, as noted above, and I really don't know what the right response to that is. Depends on how long you plan on holding, I guess.
I found $20 in a coat I haven't worn since last winter! I think I shall go invest 100% of this fund in shares at the tavern.
Is USAA as good for banking as they are for insurance?
I switched to them from Chase, and they're much better in numerous small ways. They pay bank machine fees imposed by other banks, transfers are simple, they send you post-paid envelopes to deposit your money, that sort of thing.
Ah, the conservative sandwich-heavy portfolio pays off once again for the hungry investor!
I found $20 in a coat I haven't worn since last winter!
I won a prize that has actual cash money attached. Let the good times roll!
Chase are assholes. That is all. I don't know if anyone else that size is any better. I use a credit union, fwiw.
I won a beer cooler at a trivia tournament two days ago, but I don't think it was worth the four-hour drive to get there.
22: LB, to amplify m.leblanc's wisdom, stick it in a S&P index fund and let it sit. Except for the Warren Buffet & etc. outliers, you'll do just as well over the long term as someone who constantly watches the markets and moves investments. And your life will be sooo much less boring than if you paid attention.
employees of military contracting companies have free rein to defraud the government of infinite amounts of money with no possibility of repercussions. Thus even one of those would cancel out all the starving losers.,
Ha. I wish. Maybe the CEO of my company is able to divert truckloads of cash to his front door, but I'm not seeing any of that blood money.
46: I don't think that is quite strictly true, but agree that the amount of time and effort you'd have to put into it to know enough to play around with this stuff positively is way, way too much to make it worth most peoples time.
I use a credit union, fwiw
Yay for credit unions! Please don't anyone tell dsquared about this thread.
Yeah. What annoys me is that due to the various controls on all the tax deferred stuff, I can't quite do that -- I can't put my 401K in an index fund, I can only choose among the funds they have available; same for the college savings program. I'm mostly just being an elderly peasant woman here, but I'm fully expecting at some point between now and whenever I'm going to use that money to get a letter from someone saying "Sorry, stocks went down, and your money went away."
As far as I can tell, all the recommendations of index funds presumes that the last fifty years were not an aberration in terms of the world economy, and the next fifty years will be very similar. But the next fifty years will be completely different. Seriously, they will be.
I guess index funds are still better than managed mutual funds, though.
Gold?
24: If your account is at an SIPC-member (which practically everything legitimate is) then you have a 99% chance of getting everything back if your financial institution goes bankrupt (based on prior bankruptcies). I thought there was some $20 million limit, but I can't find it on the SIPC website.
49: Me too. It's very nice not feeling as though the people holding on to your checking account are trying to screw you.
I don't think that is quite strictly true
True, I'm oversimplifying. And there are other strategies to look into.
51: Yeah, that's sort of how I'm feeling, not the gold bit, but the not-trusting the next 50 years to be like the last 50 bit.
15:After walking the dogs, I decided I was a little harsh, and I could phrase it more moderately with "concerned about talking the economy down" to use the classic expression of the period when recessions came every few years. I could be even nicer and not read DeLong's mind, but I ain't that nice.
49: Credit unions have gone under in California, and I think Pennsylvania.
51: The problem with that argument is that, to the extent that it is true, it is true of pretty much anything you can address. And LB is asking about tax-deferred, which really constrains what you can do. I did note that this isn't always optimal. Seriously though, this economy is going to get the shit kicked out of it, and I really don't know who to believe about how to best address that.
56: Yeah, they have, but in my case at least it has essentially the same protection as a bank.
Is USAA as good for banking as they are for insurance?
I have had an account with them for about 30 years, and have always found them to be very good. Good on-line banking, too. The only drawback is if you are in a situation where it makes a difference whether your checks are from a local bank or you deposit many checks (mailing takes time, losing interest, although they have a new system (which I have not yet tried) where you can scan the check you want to deposit and then deposit it electronically).
I have no money and no investment advice. Commodities maybe, but there are circumstances where that could be disastrous. Cash is gonna suck.
Store up gasoline, food, medicines but that sounds like survivalist shit. I simply expect the prices of those items to continue to rise in the near term.
I hang at the permabear trading sites, and those guys would be laughing as they fell past the 31st floor.
50: this is not due to the tax-deferred nature of a 401(k), but probably due to your firm and who they chose to run their retirement plan. one of the hot tickets for making money in financial services is to offer to run 401(k) plans for companies for free, but having the plan only offer a bunch of your crappy high-fee mutual funds.
as for the current economy, either a) a big chunk of cash, b) a big chunk of non-dollar cash if you think there's going to be huge inflation?
thinking for cash being that if the fed raises interest rates, there will be a big recession but the dollar will stabilize. if they keep cutting interest rates to try to keep the economy going, you'll want euros. but what do i know.
this is not due to the tax-deferred nature of a 401(k), but probably due to your firm and who they chose to run their retirement plan. one of the hot tickets for making money in financial services is to offer to run 401(k) plans for companies for free, but having the plan only offer a bunch of your crappy high-fee mutual funds.
From my point of view, it is due to the tax deferred nature of the 401(k), because barring that nature I'd be able to move it to someone who offered an index fund, IYSWIM.
I've recently started accumulating huge piles of cash. At ING rates, you're doing better than inflation, and beyond the tax-advantaged bits I don't trust my savings in the markets in the near-term.
everyone should just buy liberty dollars, 'cause they're backed by gold dontchakonw. Especially the Ron Paul ones.
63: i think what was meant is that if your firm had a 401k provider that offered an index fund, you could choose that. There's nothing 401k incompatible about index funds. So: complain to your firm's management.
Deferred income tax is only deferred, after all.
Well, the great thing about those accounts is that they can change the type of tax though. Instead of paying a high marginal income tax rate on interest payments and the principal and capital gains tax on everything else, you can draw it all at a low marginal income tax rate later on, when you're poor. At least, that's the thought behind 401k and IRA plans. Roths work the other way around. Pay as much into them as possible when you're poor and paying a low marginal income tax rate on the principal so that you can pull it all out completely tax-free when older. Basically, they're a tax deal for new grads so good they shouldn't exist.
LB, a lot of those accounts can be rolled over into a major company's custody if you're no longer with the relevant job. Talk to a company like Fidelity or Vanguard about opening an account and rolling some assets over into that account. They will keep the records, preserve the tax status, and allow you to enter a whole new range of investment options including some of the best index funds out there. If you're currently with the job that has a crappy 401k, you're unfortunately stuck unless they give you an out to use the brokerage and invest in whatever you want (usually a hidden option).
64: I've recently started acquiring tiny piles of cash. Excepting locked in stuff like LB is talking about. Sitting at a bit over inflation doesn't sound bad, but I'm also seriously wondering about diversifying currencies more.
63: makes sense. although you can send an email to your benefits people saying "why do the choices in our 401(k) suck so much ass? how much are we really saving the firm by having these?", and get your coworkers to do the same. also, if you quit your job you can roll your 401(k) into an IRA with which you can do as you please.
64: doing better than "core" inflation. oil and food are both rising much faster than that. but those ING rates are certainly tempting.
66: I know that was what was meant. I was attempting to indicate that I knew there was nothing 401K incompatible about index funds, but the fact that 401K's have to be controlled by the employer meant that, as a matter of practice, I can't put mine in an index fund.
If you're currently with the job that has a crappy 401k, you're unfortunately stuck unless they give you an out to use the brokerage and invest in whatever you want (usually a hidden option).
be wary of these options. a previous company had one, but it charged insane commissions for trading and also a pretty steep yearly fee, to the point that it was a horrible deal.
67: Obviously that's the thought behind 401k and IRA (and the reverse for Roth, which probably doesn't help LB at all now). But that was my point about it depending on what your actual lifetime income looks like. Your point about rolling it out if she can is a good one.
70: okay. I assume you can see how this was confusing, since you said "it is due to the tax deferred nature of the 401(k), because barring that..."
69: Well food is highly coupled to oil. There really isn't anything anyone can do about that on the short term, but suck it up and be thankful if you don't have a 2 hour commute in a SUV, etc.
Since I don't trust any aspect of capitalism, I am paralyzed by the seeming inevitability that any attempt to do anything financially will lead to me being fooled by the people who do it full-time. ING 4.5% accounts? Probably make it back in fees. Index funds? Probably the transaction costs of figuring out how to move my money around will be at least as big as whatever monetary gain I get by shopping around. Etc etc etc.
My figuring is that the US economy will continue to deteriorate, the dollar will decline, but Europe and Asia will do comparatively well. I've bet some of my money on this by buying mutual funds that are heavy on foreign stocks. It's worked well for the past few years.
In other words, avoid S&P index funds, buy things like American Funds' Capital World or Euro-Pacific fund. Despite the sales charge. Expenses are less than 1%, while gains have been around 15%
Being locked into whatever your firm's 401k offers is one of the cute little gotchas of the change from defined benefit pensions to defined contribution plans. You get all the risk, they get all the immediate profit.
The other problem with tax deferral is that you could be trading capital gains (currently 15% max) for ordinary income (currently somewhere around 28% or 33% max)
69: okay. But if sustained, shifts in oil and food will work themselves into the core numbers quickly enough.
73: Yeah, just reading the first half of the sentence might have been puzzling. (Snide? Apparently so. Working on federal holidays makes me cross. As does breathing.)
72: lifetime income s/b lifetime income profile.
In Canada, things are slightly different, but there is an RRSP that works similarly to a 401(k). I knew a woman who had gone back to grad school at middle age, taking a leave of absense from a reasonably well paid job. We were talking around tax-time, and she complained about having to scrimp to meet her RRSP contributions that year. I pointed out how this was pretty much the worst thing she could do. It's funny how you can get into a `you should do x' pattern and just not question it.
25, 32: ING is a huge Dutch financial concern (insurance, banking, etc.), so they're unlikely to go under any time soon. Bad things may happen to them, as Citi is currently demonstrating, but I'd bet they'll be around in 50 years. I'd guess that their high rates are due to a combination of factors: some attempt to build up an American clientelle; the inherent savings in running a bank without branches; the fact that savings and checking accounts are generally a bank's lowest-cost source of funds (they're taking your money, then turning around and loaning it to clog-wearing Dutchies. Your money isn't here! It's in Hans's house, that's right next door! And the De Groot house, and Frau Molenaar's house!); and finally, the attempt to build up a captive audience for ING's own mutual funds, which are the only ones offered through ING Direct.
The other problem with tax deferral is that you could be trading capital gains (currently 15% max) for ordinary income (currently somewhere around 28% or 33% max)
But that's because you *aren't* paying ordinary income taxes now on the money you put in. This is not a disadvantage. Tax deferral is good.
78: I don't see how the last half clarifies, but I'm really not going to push it.
Today's a federal holiday?
Thank you #80, I occasionally trust capitalist entities if I can be convinced that I am purchasing the loss leader while avoiding the thing they really want me to purchase.
But it does make me feel like if I'm not vigilant I will end up accidentally buying something somehow, or agreeing to buy something ten years from now.
75: There arent' any fees on those ING accounts. Their game is, a) no brick and mortar b) actually give you a return on smallish savings accounts (you can get 4.5% anywhere, just give them 50k) c) play big and lump it all together.
It looks amazingly good, but that's jsut because normal banks absolutely fuck you on small savings accounts, because by definition you are someone they don't care about too much.
oh, in 84, when I say `no brick and mortar' I don't mean that ING doesn't have any, but that they don't have any (hardly) associated with that savings account they are offering you here in the US.
81: Tax deferal is only beneficial if your marginal rate today is higher than it when you withdraw it. Modulo all possible other tax games.
This was my point earlier about your lifetime income profile. It works great on the typical trajectory, though.
Tax deferal is only beneficial if your marginal rate today is higher than it when you withdraw it
No. Not even close to right.
If anyone is interested this is a book about investing that I liked. It focuses on investing mainly in index funds.
Also targeted retirement funds can be a good idea if you really don't want to think about it since they do re-balancing for you and shift your assets into bonds as you get closer to the retirement date.
87 cont: the biggest benefit is that deferral effectively creates tax-free growth. That's huge, even if your tax rates are the same across periods. I'm looking for a concise explanation of this right now--I'll link if I find one.
87: Excuse me? What part of `modulo other possible tax games' do you disagree with?
I'm investing approximately 100% of my spare income in daycare.
Tax deferral is good.
Yep. Higher principal leads to greater long-term gains, etc.. Alternatively, investments with tax-exempt growth but no initial tax deferral on the principal (Roth IRAs) are good if you're currently in a low tax bracket but expect to be in a much higher one at retirement. Ideal for students, since they don't pay much in the way of federal taxes anyway due to all those higher education tax credits.
This has been another installment of Financial Advice From a Warehouse Clerk.
89: You get interest on the part that normally would be taxed, so when you pay the tax you still have some of the interest left over. Concise enough, or no?
ARGHHHH fucking ARGHHHH -- I worked my ass off on this project this weekend, and now it looks like I'll be staying late again tonight to finish before tomorrow mornings deadline. And feeling guilty because I'm making others stay with me.
If I'd worked my efficiently this weekend this might have been avoided, it's my own damn fault.
ah, seeing 89 I think we agree. It isn't actually tax-free growth, but it might be functionally close to that. But you're right in that you need to factor in what sort of deferred investement it is, and if you are paying cap gains on that or whatever. I was somewhat sloppily putting that all into `modulo ...' which you clipped (and shouldn't have) when you quoted me.
However, it is *not* always a net win.
This is an actually semi-efficient procrastination right now, as I just need to catch my breath again before diving back in to this thing.
92/93: again, this is how it is supposed to work, and why roth's are great for some people, but it doesn't always benefit you.
one further thing on the Roths: they do seem kind of crazy, but on the other hand students are getting screwed by tuition & student loans, so it probably balances somethign out for graduates.
Tax deferal is only beneficial if your marginal rate today is higher than it when you withdraw it
No, since you have a larger principal investment, and you benefit from that whole compound interest thing. Now, if you pay very low taxes when you make the investment, this might be true, but this is why we have Roth IRAs.
I should probably have posted the above in the work habits thread, not the boring investment advice thread. I'm fried.
If things continue the way they've been going, in 15 years we'll have another Republican revolution. Ordinary income below $250k per annum will be taxed at 78%, while capital gains (excluding residences) will be tax free. Thus, have not deferred taxes will turn out to have been a good idea.
This is a decent explanation, although it could have benefitted from more numbers.
98:
again, in theory and assuming you follow a certain pattern.Now, if you pay very low taxes when you make the investment, this might be true, but this is why we have Roth IRAs.
Which was actually my point, made in a few posts. Roths don't quite exist in Canada, for example, and don't always push you over as far as I can see.
I made a pretty simple statement, that while for most situtations this is true, for some people at some times it isn't the best bet. Are you all actually denying that?
To reply to 102, which wasnt' directed at me, of course if your tax rates now are very low, and you expect them to be very high in the future, that might be enough to make deferral not worth it. (Although, over a long time frame? Not really.) But your statement that "tax deferal is only beneficial if your marginal rate today is higher than it when you withdraw it" is wrong. It's very beneficial even if your tax rate doesn't change at all. I didn't and don't know what you meant by "modulo all possible other tax games"; if that was supposed to convey this idea somehow, I guess I missed it.
I am very fucking hostile today, I guess. LB made me snippy.
It's the circle of life; one lawyer passes on her irritation to another, and so nature's cycle continues.
103: Yeah, it was sloppy. But that's exactly what I meant by `modulo ...'
What I was inarticulately trying to convey was that while for most people in most situations it works out, it doesn't always, and that has a lot to do with your actual income this year and what is likely to happen. As you note, if the timeline is long, it is unlikely (but this assumes exactly equivalent investments deferred or not).
The situation I described above (middle aged grad student, current income next to nothing, etc.) is a real-world one where it wasn't. Particularly because she could defer the amount for the next couple of years. This stuff gets complicated.
Okay. I wasn't claiming everything you believe is wrong, just that the statement that I quoted was wrong.
107: no worries, in retrospect it was sloppy. Which I thought I addressed in 94, so I was surprised at all the `but, but ...' that followed that one.
Thanks, Gonerill, Ideal, and others, for the USAA banking recommendation. I'm totally calling them tomorrow!
If I may now slide off-topic and beg for help: can anyone point me to a cogent and easy-to-understand summary of the arguments against Social Security privatization? We were assigned an article for class tomorrow that turns out to be a pro-privatization argument, and I'd like to be prepared since class discussions are otherwise pretty sheep-y.
ING isn't going bust you American monekys, it's one of the biggest banks in the world. It pays that rate because it's cheaper for ING than borrowing at interbank rates. On the other hand, 4.5% is pretty crap. Why not do a little bit of research and use the jolly old brain to make a bit of cash? It is much less difficult than you'd think. Although actually, on a retirement savings horizon, the most sensible thing to do at the moment is keep it in a bit of cash for when the distressed property sellers start really panicking.
79: You can actually use your RRSP contributions in later years, so it's a wonderful idea to contribute to the max when you don't make much money, then, when you do make money again, use all the receipts to get yourself down to a low tax bracket.
111: right, see 106 (that's why it would have been additionally crazy for her to do this that year)
110: yes, cash is not crazy at this point. Even at 4.5% or 7% or whatever.
Too slow, D^2! Go to your pitiful teeny Northern Rock; we Americans have real cornfed two-fisted Texas-sized bank runs to work on.
111: No, I mean: I contribute in 2007, when my income is low, up to my limit (based on 2006 plus extra room from before). But I declare the contributions on my 2009 tax returns, not my 2007, because in 2009 I earned enough money to make the tax refund worth it. You can take the tax break at any point after the year you make the contribution up until the year you or your spouse (if the spouse is younger) turn 69 (the year after? the year before? something around then). This is a little known fact about RRSP contributions.
27
"Sound like it's time to start the Unfogged hedge fund. Actually, I wonder if the net worth of the Unfoggetariat as a whole is positive or negative. I'd bet negative."
According to this (pdf) as of 2000 the average net worth of American households was $182381 (median was $55000). I would expect the figures for the Unfoggetariat to be higher.
25
"also, brokerages going bankrupt usually doesn't affect people who have accounts there (that i'm aware of)."
It depends. I have heard horror stories where the records were so bad it was hard determine who owned what. And your account may be tied up for a long time which is bad if you want to sell your Enron stock before it goes bust.
Say, Becks, what's the first rule of comedy?
114: Ah, I see what you meant. That doesn't help you much if you are `scraping to make the contribution' as in the original scenario. Presumably in the higher income year, this isn't a problem. But yeah, you can do that if you are in a year where your income is low, but not so low you'll really miss the contribution....
I am paralyzed by the seeming inevitability that any attempt to do anything financially will lead to me being fooled by the people who do it full-time. Etc etc etc.
Why worry so much when all you have to do is invest in my hedge fund?
Incidentally, for those who were talking about USAA funds, I found their index offerings to be pretty mediocre in that thread. If you have a choice and they're not offering you free money, they're probably not the ones to go with.
101 is a very good link for getting to the heart of why tax deferral is good so long as one's marginal income tax rates during retirement will be at most equal to current marginal income tax rates. I was going to pull in a bunch of details, run some numbers simulating the loss of 15% cap gains on a payout of 3-5% of assets each year (assuming an inefficient money manager, etc.)... but this link is much, much better.
One of the benefits of a 401k is that you drip principal in over time, which mitigates your risk. However, I have a large portion of my savings in cash or government bond ETFs right now (~60%, especially since the stock portion bit it the past month) so what's the better plan- try to guess the bottom of the market and invest then, or start dripping my cash into the market over the next, say, 24 months? The latter would result in more transaction fees. It's also all at Etrade, so maybe I won't have a choice- hooray!
so what's the better plan- try to guess the bottom of the market and invest then, or start dripping my cash into the market over the next, say, 24 months?
I'd say your best plan is almost certainly to drip cash in, but use no-transaction-fee mutual funds instead of ETFs. The tax benefits are about the same and the expenses aren't too different; ETFs just aren't a big screaming deal for individual investors in my opinion.
Depending on how much you have to invest, E*Trade looks to have a couple reasonable index options. They're less than perfect for a couple reasons, but the expenses are low and likely to stay that way for a while (not too many fee waivers disappear suddenly at expiration), and they'll save a lot on transaction fees provided you have at least $5000 to invest initially in each fund you want.
I would help out more, but it would take a couple days because my super-duper fancy-pants database of all mutual funds available in the US and their many attributes is at work, and I'll probably stay home sick again tomorrow.
Right now I'm maxing out my 401k and Roth, but I think the Roth is the better deal. I'm making good money now, since I can do those things, but I suspect that political forces will cause taxes to be generally higher when I retire - repeal of the Bush tax cuts, no SS trust fund to mooch off of, we'll be paying off the current debt, and paying for the (IMO inevitable) universal health care. So I'm going to be screwed on taxes in the future, even compared to my single, wage-earner-only self now.