Investment for Noobs

[Seraph]

There is no way in hell you will beat 13.25% returns if you do not know what you are doing. Therefore, you kill that loan specifically ASAP (while still maintaining a sum of money for emergencies), and then come back once its gone and ask this question again. Good luck.

EDIT:

A friend of mine bought a car several years ago and only found out after the fact that the interest-over-term was fixed and that if she paid extra, it would only be credited toward her next payment and not toward the principal.

Sallie Mae pulls this bullshit, but there is an easy work around. You pay double the monthly payment minus a single dollar. If your monthly bill was $200, you would pay $399 monthly. This legally prevents them from applying to future payments, and instead all of the extra goes towards principle. While you are doing that, you put extra money aside and once your sum exceeds the remainder on the loan balance, you call them and ask for a payoff balance for the account. It is not 'perfect', but I had no issues using this method. The nice part is that that sum you are setting aside doubles as bonus emergency money for the duration of the loan.

Fuck Sallie Mae, etc.

[Aksannyi]

There is no way in hell you will beat 13.25% returns if you do not know what you are doing. Therefore, you kill that loan specifically ASAP (while still maintaining a sum of money for emergencies), and then come back once its gone and ask this question again. Good luck.

Aahahah, yeah, I told you guys I was a noob at this - but at least I knew I had to get rid of that high shit first. I've been working on it, and it'll be gone by the end of the year.

[test123]

Putting 1000$ in a bank, stocks or paying down debt is not really an investment.

Your best bet is to leverage ~30,000$ to buy an apartment in a low housing market, rent it out, then sell it when the market is high. The rent should ideally cover interest, utilities and maintenance. A one bedroom apartment inside the city near public transportation the safest bet. Don't buy unless you know what you get is well under value.

If you can't fork up that amount of money, consider moving in with family or friends for a while and save. If you currently own your own place you can do this and rent that place out.

[RKenshin]

This is not completely accurate. In some states, it is against the law to have borrowing schemes with early payment penalties, but not all. A friend of mine bought a car several years ago and only found out after the fact that the interest-over-term was fixed and that if she paid extra, it would only be credited toward her next payment and not toward the principal.

It depends not only on your state laws but also the type of debt. Most (if not all) conventional mortgages should not have this issue, but smaller arrangements (such as personal loans, auto loands, HELOCs, etc) may have this stipulation.

Caveat emptor.

Even in that case (though likely rare), the situation you outlined does not describe a penalty - it simply would be no difference for either scenario. If the terms of your loan require a fixed total interest payment over the period (which is a terrible loan condition that probably just takes advantage of those with bad credit/low means in the few places it's legal), then whether you pay it early or not doesn't change that.

Some conventional loans do have 'exit fees', but again, they're typically a fraction of what you save in interest by finishing the term sooner.

[Aksannyi]

If you can't fork up that amount of money, consider moving in with family or friends for a while and save. If you currently own your own place you can do this and rent that place out.

My nearest family member is 800 miles away, so that's not quite an option. And I'm not willing to sacrifice my sanctuary. Yes, paying rent every month is an added challenge I could do without, but having my own space and being alone is something worth the additional cost to me. I've done the roommate thing, and what I learned during that time is that I'm a solitary person.

[Coren]

Getting into real estate investment of any kind is wayyyy outside the scope of this discussion. And while it can have fantastic ROI numbers, you have to know a LOT more than if you just want to hop on e-trade and dump $1000 into pick-a-stock. Else you'll end up with a 30k apartment sitting on a cracked foundation in a floodplain with a broken HVAC unit that costs 70k to fix (etc).

[Seraph]

Putting 1000$ in a bank, stocks or paying down debt is not really an investment.

Your best bet is to leverage ~30,000$ to buy an apartment in a low housing market, rent it out, then sell it when the market is high. The rent should ideally cover interest, utilities and maintenance. A one bedroom apartment inside the city near public transportation the safest bet. Don't buy unless you know what you get is well under value.

If you can't fork up that amount of money, consider moving in with family or friends for a while and save. If you currently own your own place you can do this and rent that place out.

She says she is a noob with investing and doesn't want high risk, and you tell her to leverage? Get out.

[Conrad]

Here's the order you should focus your money, as a general rule:

1) Get out of whatever debt you might be in. Only exception to this is a mortgage or student loans. If it's under 3% interest, don't bother because your money will make more than the interest will accrue due to inflation.
2) Create an emergency fund, 3-6 months' expenses is recommended depending on your job stability.
3) Max to whatever percentage your employer is matching in a 401(k).
4) Open an HSA if you have a high-deductible healthcare plan, max that out ($3300 for a single person for 2014, not sure how it is with kids).
5) Open a ROTH or Traditional IRA, max that out ($5500 for 2014).
6) Max your 401(k) to the annual match (I think it's $17,500 for 2014).
7) Invest your post-tax income in Vanguard index funds.

I think that's the most foolproof and straightforward way to manage your money. Keep track of every dollar you spend and find places you can cut back. Spending less is just as important as saving more.

[test123]

She says she is a noob with investing and doesn't want high risk, and you tell her to leverage? Get out.

Well, bring on the big macs, because that's the only thing her returns will afford her.

[RKenshin]

Go big or go home isn't really the best philosophy for noob investment advice, or really any investment advice.

Not to mention, not everyone's goals are centered around making the most money possible.

[Abandon]

Well, bring on the big macs, because that's the only thing her returns will afford her.

i am loving this thread

[wipers]

Just watch Mad Money with Jim Cramer:

[RKenshin]

Here's the order you should focus your money, as a general rule:

1) Get out of whatever debt you might be in. Only exception to this is a mortgage or student loans. If it's under 3% interest, don't bother because your money will make more than the interest will accrue due to inflation.
2) Create an emergency fund, 3-6 months' expenses is recommended depending on your job stability.
3) Max to whatever percentage your employer is matching in a 401(k).
4) Open an HSA if you have a high-deductible healthcare plan, max that out ($3300 for a single person for 2014, not sure how it is with kids).
5) Open a ROTH or Traditional IRA, max that out ($5500 for 2014).
6) Max your 401(k) to the annual match (I think it's $17,500 for 2014).
7) Invest your post-tax income in Vanguard index funds.

I think that's the most foolproof and straightforward way to manage your money. Keep track of every dollar you spend and find places you can cut back. Spending less is just as important as saving more.

Agree here too, good and safe set of rules/priorities.

[Aksannyi]

Not to mention, not everyone's goals are centered around making the most money possible.

This - at best, I'm looking to be able to finance my living into retirement. I already know I'm way behind due to my debt and my age, so I will have to play catch-up. I grew up in the 80s where the idea of "you must go to college" wasn't really that firm in the minds of most. My dad is 61(?) and still thinks you just have to knock on doors and someone will hire you. The culture has changed a lot in the past 30 years. You used to be able to just get a job at GE or some place, work there for 10 years, and buy a house. It isn't like that anymore.

[wipers]

Beginner investor:

[test123]

This - at best, I'm looking to be able to finance my living into retirement. I already know I'm way behind due to my debt and my age, so I will have to play catch-up. I grew up in the 80s where the idea of "you must go to college" wasn't really that firm in the minds of most. My dad is 61(?) and still thinks you just have to knock on doors and someone will hire you. The culture has changed a lot in the past 30 years. You used to be able to just get a job at GE or some place, work there for 10 years, and buy a house. It isn't like that anymore.

For long time investments the housing market is the best you got. You can hold on to property for 30 years if you have to before selling.

[Cutriss]

Even in that case (though likely rare), the situation you outlined does not describe a penalty

It's not technically a penalty, but if you're already locked in, then prepaying the loan is just giving the lender a 0% loan on your own money that you don't quite owe them yet. That's money you could be investing elsewhere, so it's an indirect penalty. If paying an extra $50 on my car note every month only terminates my loan early but doesn't save me any money, I'm better off buying a CD every month.

It's also not as rare as you think. Like I said, there are laws in my state against it. If it's illegal here, it's probably because a lot of people were doing it, and it's still legal (and thus being done elsewhere) because capitalism.

[BaneTheBrawler]

My nearest family member is 800 miles away, so that's not quite an option. And I'm not willing to sacrifice my sanctuary. Yes, paying rent every month is an added challenge I could do without, but having my own space and being alone is something worth the additional cost to me. I've done the roommate thing, and what I learned during that time is that I'm a solitary person.

i feel like you and CS would probably get along. maybe you could room with him.

[Aksannyi]

i feel like you and CS would probably get along. maybe you could room with him.

The last time I had a roommate I pretty much almost murdered her. I will never again live with another human being unless my house is big enough that I can essentially have my own apartment on one side of the house where that person is unable to interfere with me being a loner.

Not saying I wouldn't get along with CS - we probably would. But not as roommates.

[test123]

Living alone and not sharing expenses with another person will cost you. You can almost cut living expenses in half, basically most of your discretionary income won't vanish. Without discretionary income you have nothing to save. There is a HUGE difference in going break even every month living alone and having 1000$+ every month in savings.