Hello! I'm new to this board and to thinking about personal finance, and I'm looking for some advice.

I'm 23 years old, fortunate to be out of college with no debt. After a year of stipended volunteer work, living rent-free on $1000/month, saving roughly $300-400 of that, I've finally landed a steady job (32k -- not big money, but it's a reasonable starting salary in my field and I love what I do). Once I start my new job (and start paying rent), I expect I'll be able to save around $400-500/month. My emergency fund took a hit earlier this year when I had some medical issues but it is funded to ~4 months right now and I'm continuing to build it back up to 6mos.

I have a Roth IRA with Vanguard that I opened last year & funded $5k with money I'd saved from part-time jobs in college -- I'm planning to continue putting a few hundred dollars a month into it, as my employer doesn't match 403(b) contributions and I'm in a fairly low tax bracket right now. It's in a target date fund, and I'm pretty happy with that in terms of being able to be hands-off about it.

So my question is -- A few years ago I got a sizable inheritance (just over $40k). At the time, I was in college and had no idea what to do with the money, so off it went into a few CDs at my credit union. Half of it is coming out of a CD soon, and having read a bit about investing it seems that CDs are not a wise choice, given that I really don't know when I'll need the money. I might want it for grad school in 2-3 years, for a down payment on a house in 10 years, or I might end up saving it all the way to the college education of my as-yet-theoretical future children.

Advice on what to do with this money? How much to keep in stocks vs. bonds vs. very very safe things? Particular types of funds to go for, or not? I know it's tough to give advice with no estimated time horizon (trust me, it's tough to make decisions that way too!).

Thanks!

Since you have NO idea what you are going to use the money for, I would keep it all as short term money. And it sounds like you need to top off your emergency fund. People argue about how much is needed, but I can't sleep at night with less than 1 year of expenses. So, if you are more comfortable with more in the emergency fund, top it off to what ever level helps you sleep at night. We keep 90% of our emergency fund in 5 yr CD's (at ally, low penalty for breaking the CD) and I-bonds. The rest is in the "high" yield savings account. Beware that an I-bond cannot be redeemed for 12 months.

Unfortunately, it doesn't get much sexier than that unless you know the time frame for the money. I would NOT put any money in the stockmarket that you plan to touch in 5-10 years. And if you venture into the world of bond mutual funds, I would keep it short term so you don't take a bath on your NAV when interest rates rise.

If you can afford to dispense of 1/8th of that 40k, another Roth IRA contribution would be advisable. You can tap whatever of the contribution is left if needed. This is much better in my eyes than planning to contribute a few hundred every month. The wheels on that wagon often quickly come off. Put it in while you can!

I am in a similar situation with regard to not knowing when I will spend a large chunk of money. It is probably best to stick with short term investments, but if you can segment or "bucket" the money, you can put some of it in the markets. Let's say if you go to school you could manage to keep $10,000 invested despite the cash drawdown of tuition. In that case you might put $10,000 in the market.

Just something to think about - it all depends on your personal circumstances.

if either of you need help with deciding how to spend your money, I can certainly put it to work. I'll even eat the paypal fee.

I agree with what has been said, except maybe Bichon's paypal fee..

But it sounds to me like you have made very smart financial decisions to this point. My main suggestion would be to begin to educate yourself about personal finance. If you keep making good decision like you have been, you'll have a lot of money to invest at some point and you'll need to be wise about doing that.

Since you don't know when you will need money I'd keep it in short term bonds or CDs. You are in a low tax bracket so that the income is not going to be taxed very highly. A Roth is not a bad idea but would not be my first suggestion because you can't easily get at the money for 5 years (you can but encounter some minor issues) and, in a low tax bracket the savings on taxes are minor. But it's something I think you should learn to run the number for yourself.

As has been discussed on other threads, you need to wrap your head around the simple fact that stocks, which are usually considered risky, are actually less risky over the long term (>10 years) that supposedly safe investments. I'd like to see you make some small investments in the stock market through low cost mutual funds to get you comfortable with that idea. But I do not suggest you do that with money you might need in the next 5-10 years.

Maybe the best approach is to set aside some part of your inheritance that you can live without for at least 10 years and call it a retirement fund. I'd suggest about $10,000 for that but choose whatever you feel comfortable with. Put the rest in a short term bond fund at the same fund company (Vanguard, T. Rowe Price, or Fidelity). Then read every personal finance book you can get your hands on and work hard to understand what you read and learn to make decisions on your own. Because no one will ever care as much about your money as you do!

Good luck.

I believe the "5 year rule" for a non-qualified basis distribution is only applicable to conversions and rollovers. Of course, according to the ordering rules, one would have to get through the straight roth contributions first. Pub 590 pgs 63 & 64 make this as clear as mud. Also, stepping through an 8606 shows the same thing.

I registered for this site just share this info. It's not exactly your question but just in case your wondering what to do with that $400-500 your planning to save per month. It's something I wish I knew when i was your age. Your age is your biggest asset and your income is just right for you to take advantage of it.

It was said that if you save just over 10% of your gross income per year for 10 years, then never saved another penny again for the rest of your life. You'd be a millionaire by age 65.

The $400-500 per month is actually a bit higher than you need to achieve the above example.

The math:
If you save $4500 per year for 10 years. You would have saved $45,000. But with a 5% return it would be worth $59,820. You would be 33 years old.

$59,820 invested for 30 years at a 10% rate of return. Having never added to that money again, would be worth $1,186,673. You would be 63 years old.

Just imagine if you continued to invest after the initial 10 years...

Calculator I used
http://www.bankrate.com/calculators/sav ... -tool.aspx

Hi,

You can look at my investment strategy and see if you like it: http://www.dogsoftheseason.com. I buy (GARP) stocks in Autumn and sell them next Spring. Here is a link to a recent academic study about seasonal investing: papers.ssrn.com/sol3/papers.cfm?abstract_id=2154873

Cheers,
Tomo

Hi there! Something that a lot of people don't realize is that investing in stocks using value investing is a LOT safer than investing in the market in general (including indexing). And, as I am sure you are aware, the stock market is considered more profitable than bonds. I'm not familiar with the current CD rate, but as I recall it tends to be rather low and you are right in that it is not ideal for investing.

I provide a stock portfolio creation service and I am willing to make a portfolio for you for free. You can check out portfolios I have created over at SPAM REMOVED . All 11 of my posted portfolios are in the green (actually making money before commissions), beating 5 different indexes at the *same time* (AMEX, NASDAQ, NYSE, S&P 500, and DJIA). All 7 of my portfolios there that are 6 months or older are beating the best performing of those 5 indexes by at least 7%.

How do I achieve these results? Well, firstly not all sectors are equal. Just as an example, the Consumer Goods sector is the most profitable when looking at whole sectors. It is one of the most profitable sectors when looking at it from a value investing point of view. It is also potentially the safest sector (even safer than utilities, which most people consider to be the safest sector).

On the other hand, information technology carries the worst returns as a sector, the worst returns when looked at from a value investing perspective, and the most risk of any sector.

This is just a sample of the information that I used in creating my stock-picking system. Value investing basically looks for stocks that are under-valued. Value investing has proven to be superior to merely indexing in various studies of the stock market. If you want me to make you a portfolio, you know where to find me.

Value investing has historically returned a little bit better than the overall market because it is RISKIER. That seems to be in conflict with your claim that value investing is safer don't you think? But the fact that value investing has been both riskier and produced a higher return is consistent with the Capital Asset Pricing Model and other freely available techniques for selecting stocks or asset classes such as "value stocks."




You cherry picked? Why don't you post 10 different portfolios here. After a few months or a couple of years we can compare them to the market index and decide if you have done well on a risk-adjusted basis. You can even pick the index as long as you do it in advance of the evaluation period.

DoingHomework, you post no proof as to saying value investing is riskier. It is safer. Read the book "What Works on Wall Street" (Fourth Edition) by James P. Shaughnessy. You want to talk about historically? The book covers more than 40 years worth of market data! You say that "value investing has historically returned a little bit better than the overall market"? Value Composite 1 in the book has returned 7% better PER YEAR on a COMPOUNDING basis when comparing it to the S&P 500! You want to see my portfolios? Go over to prostockpicks.proboards.com . I have 7 of the portfolios posted (those that are 6 months or older) and 4 portfolios showing only the results (those that are less than 6 months old). If you want to see how I pick my stocks, why don't you come over here? I'm not going to simply post my whole process on the net. The process is somewhat easy to duplicate if you have all the information. You want a private viewing over the net? We might set something up with that if you really want to. I have Livestream Procaster and can stream my computer's screen over the net. You'll have to give your word that you won't record my process though. It is what I use to make money on the side after all.

Also, as I am offering a free portfolio to others, I'll offer one to you also. Message me your e-mail and I will create a portfolio from scratch, add in 5 indexes and 5 ETF's to compare the results to, and send the portfolio to you. I'll even update it every 3 months if you don't feel like updating it yourself (for some people, I might consider updating it more often, but you're obviously not going to be using it for investing purposes so I see no need to do that).

if you have found such a great system, why are you selling your methods? Surely, if it is as good as you say, letting everyone in on it will certainly reduce your earnings (if everyone can do it...it doesn't seem to carry as much risk does it?). So, the real question is, do you stand to make more money keeping your secret to yourself or by pedaling it to fools (yes, you are a fool if you pay this turdball money)? It's quite obvious how you feel you stand to make more...

It's easy to say that when you don't know my circumstances. I happen to be attending college and extra classes on the side right now. I don't happen to *have money* to invest currently, or I'd be doing so. But even if I did, so what? I don't sell the process. I sell the product. People get the portfolios I create and don't generally get to have an inside look at my exact formulas, only the overall process at most (unless I happen to be creating a portfolio for a family member, such as I have indeed already done). The fact is that there are tons of different methods for investing out there which people spread their money through. There's growth investing, investing in indexes, ETF's, options, commodities, bonds, CD's, etc. You think the world is going to get its hands on my formulas? You gotta be crazy. If people want to know about value investing, I generally refer them to a book on it. People that get portfolios from me get the general idea of what I am doing, and may indeed see a lot of the process, but I keep the formulas to myself unless I happen to totally trust the person (2 others so far have seen the exact formulas and I trust them not to leak it).

I offer you the Capital Asset Pricing Model. There are thousands of papers about it from both academics and Wall Street practitioners. Please visit your nearest research library. In a sense you are correct, value stocks have historically performed better, but they are also higher risk.



Personally I would not trust anything that goes back less than 100 years. Yes, the CAPM completely explains the excess returns of value stocks. Bernstein explains it in "The Intelligent Investor" which is widely recommended on these forums. Said another way, all the excess returns of value stocks is explained by the additional risk. In this case "risk" is quantified by objective measures like standard deviation.



I'm not asking you to post your process. I'm suggesting that if you think it works then show us evidence. Give us a portfolio that will gain more than the market index by May 7, 2013 and November 7, 2013. If you are right, we'll give you a pat on the back and you'll have a record to point to.

On the other hand, if your system just takes buying a $30 book and applying what it says, how much value can you possibly be offering?