Suggestions for my Financial Picture

[maporsche]

Please read my financial plan and offer suggestions as to what I should do with my money. You guys are extremly helpful, and much cheaper than a financial advisor.

 

Age: 25

Pre-Tax Income: $45,199

Take Home Income: $32,350 ($2700 / month)

Monthly Bills: $1,317

 

 

Current 401(k): $7,292

401(k) Contribution: 6%

Employee Match: 6% (100% for 1st $2,000, 50% up to 6%)

Total Annual Contribution: $4,500 (my investment, plus company match)

 

 

Current Savings: $5,300 (Money Market)

Current Debt: $0 (No car loan, I will soon have a $180,000 mortgage - June05)

Sharebuilder: $356

 

 

 

After figuring in my budget ($600 monthly for food, gas, etc) I have about $700 in extra money each month.

 

What should I be doing with this money to maximize my return? I'm currently considering investing in rental properties, but I have not committed to that as of yet.

[Hwkdrvr]

Take that additional $8400 and apply it toward your 401k. You can put up to $14000 in your account this year. If that is not to your liking, put the max in a ROTH IRA ($3k or $4k I don't remember). Then take the rest of the money and invest in energy stocks, commodities or iShares (FXI) ETF China.

 

China is booming but due for a hard landing sometime in the future. Save your money and read the headlines. When the report of Chinas economic woes comes, it is then time to buy.

 

If you are interested in a commodities index instead of commodity futures, you can look at Rogers International Commodities Index. $10,000 minimum investment; but I think the potential for a good profit is there. Everything I read these days indicate that stocks are declining and we are in the throws of a bull market in commodities.

GM just cited a decrease in forecasted profits based on rising steel and fuel costs. I just saw a headline where coffee was at an all time high. Copper is trading at a sixteen year high. The boom is on!!

 

 

Good luck,

 

Michael

[radi8]

I agree about stuffing the retirement accounts.

Get as much in there as you can and let time do the rest.

 

There'll come a point where you can cut back on the contributions and let time and interest continue to build the account for you...while diverting your excess into something with a more immediate return.

[texastech97]

I also agree. I would put the extra money into a roth ira ($4K for 2005) and the rest into your pre-tax 401k. At age 25, that money can compound pretty good before retirement.

[54regcab]

Maxing out retirement accounts is rarely a bad option.

However consider your mortage as part of your portfolio, you can "invest" in paying down the mortgage as a way of getting a return equal to your mortgage rate.

IMHO it makes little sense investing in a "stable fund" @ 3% when the money could be used to pay off a 6% mortgage. Personally we are putting 15% into retirement and using the remaining funds to pay extra on the mortgage.

 

Speaking of mortages you did not indicate puchase price of the hosue or down payment. If you are putting down less than 20% consider a 80/20, 80/10/5 or 80/10/10. Pay off the varible rate HELOC quickly while funding just enough to get all of the employer match, then max out retirement funding.

 

Another thing to consider is your next car, you should be saving your old car payment (If you had one) now so you will be able to drive fairly nice paid for cars indefinetely.

 

Rental properties can be excellent investments but don't be over-leveraged in them. Be sure they will bring 1% of their cost per month. A $50K property should bring in a gross $500 per month. Any less than that you are better off putting your money elsewhere in most cases. Put at least 20% down so you won't have cash flow problems when vacant or in need of repair.

Edited March 19, 2005 by 54regcab

[Hwkdrvr]

I agree that paying down your mortgage could be a good alternative to your investments. Alan Greenspan keeps telling the financial world that Americans aren't saving enough. He attributes part of the low savings to the fact that many folks are relying exactly on what your are describing: Foregoing traditional savings by investing in their mortgage. My only concern is that when the property bubble bursts, many people will find themselves with far less than they had hoped for.

 

If your investment strategy is balanced, should there be a weakness in any sector, you should be covered.

 

HTH

 

Michael

[maporsche]

Thank you for all the suggestions.

 

Based on what you've all said, I think that I'm going to open a Roth IRA and max that out to 4K (I think that they would provide better investment options then my current job).

 

I will be getting an 80/20 loan on my house. I like the idea of paying off that 20% early, so I think that I'll do that as well.