Allocating $800 a month to savings

**KTP** · 08-24-2009, 08:00 AM

Please please post the information on the bank that will give you 6.5% on a savings account!

Actually, I would take 3% on a savings account and be happy.

Seriously though, for a 6.5% return, it is going to have to be the stock market, or possibly certain munis.

What if instead of renting a 3/2 house for $1500 you went for a 2 bd 1 bath apartment for $1000? Then you invested that $800+$500 each month into the stock market which historically has returned 10 or 11%. If you spread your investments over several large companies in different segments there is an extremely low chance you would ever lose it all. If all of the big companies in the stock market were to go bankrupt it would not matter at all if your money was in a savings account...the country would be in chaos and you would probably be robbed of the canned goods in your pantry.

**Radiance** · 08-24-2009, 08:39 AM

I see, I wander why is bankrate defaulting their calculator at 6.5%..~~~
Anyhow, since I am very unconfortable with invensitng and diversification sounds to me like a weird deasease, maybe I need to pay somebody to propose a portfolio for me?

large companies in different segments

You lost me there... or I need to educate myself...gosh, I really get itchy about the subject. Where to start the learning? books, courses?

Any way I can avoid having to learn the stock market? I think I'd rather eat raw lima beans.

I can not believe every American is knowleagable in the topic, yet everybody seem to have some sort of stocks.

**happygirl** · 08-24-2009, 08:50 AM

Oh Radiance, you are not alone. I'm afraid I kept my head in the sand far too long because I didn't understand all this retirement stuff. Now, I'm starting to get it and I'm meeting with a few financial planner/advisors in the nest few weeks to determine if one of them feels trustworthy to me.

I started reading books (easy books) and looking at this and the Dave Ramsey website about 6 months ago. From it I've learned that I want to focus on a good balance of growth/risk. I'm like you. I fear the potential of losing it all, so I think balancing the risk is best for me even if it means I'll make less in the long run.

Rather than focusing on individual stocks, I like mutual funds where your money gets put in with other people's money and stocks are bought in bulk with you owning a portion. According to all I've read, this is a safer way to get into the stock market.

Obviously I still have sooo much to learn, but I don't feel nearly as intimidated as I did before by it all. Good luck!

**Radiance** · 08-24-2009, 08:50 AM

Australian banks are offering 5.5%... but foregin exchange scares me too.
(look up international savings rates)
How about mutual funds, what is the average, reasonable return for those?
I read those are less risk than regular stocks?

**KTP** · 08-24-2009, 09:02 AM

Hell, I am certainly no stock market expert, nor can I predict which internet startup is going to be the next facebook.

When I go to the mall and see 50% fewer people there than I did in the past years and then I go over to Wal-Mart and I have to park in the next county over just to shop there because of the crowds, I think to myself...hmm, should I invest in The Gap or Walmart stock. It isn't a very hard choice.

(I do more research than that, but you get the idea)

I stay away from financial and insurance stocks because I really have no clue how or why they operate like they do. I miss out on the surge of stocks like Citibank from $1 to near $5 in a few months, but thems the breaks.

I think the research can be fun. I think you can limit your risk to acceptable levels by picking companies that have a healthy cash flow, little or no debt, pay a nice dividend, and still provide a product or service that will be in demand, recession or not. Food, medical supplies, gasoline, personal hygene items, etc. We are going to buy these things long after we stop dining out or paying $40,000 for a luxury SUV. How many of your friends have declared that they are stopping the purchase of deodorant, shaving cream, hand soap, laundry detergent etc. Ever hear of a company called Procter and Gamble?

Who knows though...I may lose my shirt and the guy who has $150,000 sitting in a 1.75% savings account may look like a genius 5 to 10 years from now...

**shultice24** · 08-24-2009, 09:31 AM

I know the investing world can seem overwhelming, but it certainly doesn't need to be.

I like what happygirl wrote about mutual funds, and I'd like to make a case for a specific kind- index funds.

In an index fund, you own every stock in the index. Say you buy the Vanguard 500 index. You instantly own every single stock in the S&P 500, and you don't have to spend one second doing stock research. Or even broader still, you can buy a Vanguard index that gives you every single U.S. stock (3,500+), or even a fund that includes nearly every stock in the world!

Then you really have no reason to worry about the performance. You will match the market, guaranteed. The only way you would lose long term is if complete economic meltdown happened. In that case, as someone else mentioned, your investments would be the least of your concerns.

Some people spend a lot of time chasing higher returns than the market will give. My philosophy is to take the market averages, spend almost no time on my investments, and go do something else. That doesn't mean that stock-picking can't be fun and rewarding, it's just my preference. Just don't expect to succeed at picking and choosing stocks unless you're prepared to spend serious time on it.

Vanguard index funds are great because the fees are dirt cheap; these lower fees are the reason why almost no mutual funds can compete with index funds for any length of time.

I would highly, highly recommend spending some time on Vanguard's website and talking with a representative of theirs. They also offer regular mutual funds (active management), so if you're interested in index funds you need to screen your search to include only passively managed funds. There are other good companies (T. Rowe Price, Fidelity), but I think Vanguard lives up to their name (and I'm sure some other forum members could attest to that as well).

It doesn't have to be overwhelming at all, and you certainly don't need the services of an overpriced full-service broker who just wants to leech off you with commissions!

Best of luck!

**KTP** · 08-24-2009, 09:43 AM

I agree with what shultice said. If you really don't want to do any research at all, look at the index funds. Part of my investment is just a blind purchase of S&P 500 spiders (shares in a trust that tracks the S&P500 by buying shares of all of the companies in it). I am fairly lucky in my timing as my average share purchase price is $75 and today they are trading at over $103. Not a bad return for a 8 month investment, but things could have been a lot different if I had made these purchases 2 years ago. My timeframe is more like 8 to 10 years though, which is actually a bit short to even be in these lower risk index funds.

To me mutual funds with high expense ratios are a total scam. You end up paying a fund 1% to 2% of your total assets EVEN IF THEY LOSE YOUR MONEY. Imagine having to pay the guy you hired to paint your house even after he mistakingly painted the next door neighbor's house instead!

I wish I could land a job where I get paid for poor performance...oh wait, I could run for an elected office

**Radiance** · 08-24-2009, 09:55 AM

I started reading books (easy books) and looking at this and the Dave Ramsey website about 6 months ago.

Thank you for the tips and the empathy happygirl!

What are easy books I can try? Will check out that website.
I do feel mutual funds will be a starting point for me.

Question for everybody:
How much should I be investing per month? I undertstand the answer might be AS MUCH AS YU CAN. But I wanted to get an idea.

If I allocate $800 for the sole purpose of savings and investing, I think it might be:

$200 - pure "high yield" savings
$400 - mutual fund
$200 IRA account

What do you think?

**happygirl** · 08-24-2009, 10:08 AM

Ok, don't laugh at these hoakie names, but 2 I just recently read were:

"Gimme my money back" by CNN's Ali Velshi and
"The complete idiot's guide to protecting your 401k and IRA" by Jennifer and Bill Lane.

Both offered simple explanations of products and vocabulary. Both offered examples of when and why one thing might be better than another, and both were easy reads.

And of course, I've read Dave Ramsey's TMMO book. I don't agree with everything he recommends, but it's not hard to glean good ideas from him.

**zetta** · 08-27-2009, 02:52 AM

Here are the books I've found useful to learn about investing, and the main topic covered. I've placed them in the order I would recommend reading them. You can click on my Booknotes catagory in my blog to read my summaries of numbers 1, 2, and 6.

1. All Your Worth (getting your basic financial picture in order so you have money available to invest)
2. The Complete Idiot's Guide to Getting Rich (helps with goal setting)
3. Bogleheads Guide to Investing (explains mutual funds and the indexing strategy)
4. The Intelligent Asset Allocator (how to structure your portfolio)
5. Morningstar Guide to Mutual Funds (how to analyze and pick funds)
6. Common Sense on Mutual Funds by John C. Bogle (highly technical analysis of index investing)

Also The Complete Idiot's Guide to Mutual Funds is probably worth reading for an explanation of what mutual funds are.

**anonymous_saver** · 08-27-2009, 09:03 AM

Originally posted by Radiance View Post

Some background
Mainly due to separation I am working to shortsale my house(long story).
My mortgage is 2800, which I can not afford, I could pay 2200, but the bank will not continue to modify the loan.
So, let's say I have 2200 to spend in housing.

Renting a nice 3/2 house in my area is 1500, which leaves 700 free.
In addition if I pay off my credit cards, I woul have additional 400.

Let's say I decide to rent forever and assign 800 towards savings.
I used bankrate's savings calculator and this could mean 245,480.01 after 15 years, at a 6.5% return.

Some questions:
How feasible is to get a 6.5% return?
How much do savings return vary? assuming it is 6.5% today, could they go down to 3% tomorrow?
What is a good bank to save at?

I have very low risk tolerance, so I am scared to death to invest in stock market (besides I don't understand a bit about it)

It seems I will have $800 for savings so I want to decide how/where to save.

Thanks!

I would need more information before I give much advice.

How much are you contributing to your retirement?

How much do you have in an emergency fund?

Are you getting any money back from selling your house?

How much debt do you have?

If you have $800 extra each month, I would look at these questions first as a way to analyze how you should allocate this money. I look forward to hearing what your response/decision is.

Allocating $800 a month to savings