Blown Away wrote:
So flagpole,
I am 26 and have a wife and 1 year old son. We can pull together about 2500 now to invest (pushing our limits) or we can wait until about June and have 4k to invest without much strain (after tax return and some savings). If you were me what would you do? Let me narrow it a little bit.
I really only want to do mutual funds.
If I invest now do I do it for retirement and in what Vanguard, which fund?
Should I invest in a college fund?
Should I wait until maybe the market is back up to 10k and then could drop again and take a while to get my money back?
What are your thoughts?
Blown Away,
Investing is for people with no debt but for a house. There are some exceptions to that rule, but not many in my opinion. The steps BEFORE investing are:
1) 3-6 months of expenses emergency fund.
2) NO debt but for a house that you have a FIXED RATE mortgage on that take no more than about 25% of your takehome pay.
3) NOW, invest in this way -- 401k up to the company match, then a Roth IRA up to the maximum ($5,000 in 2009) and then back to the 401k. The goal should be 15% into those accounts.
4) Once you are doing all of the above, then it's time to invest outside that if you have the funds. Extra non-retirement mutual funds are the best idea. Jim Cramer is big on stock "baskets" but he warns that in order to pick a stock you need to spend an hour a week PER STOCK doing research on that stock and that you should have 5-10 stocks MINIMUM at a time, so that's 5-10 hours of work per week in order to pick individual stocks. I wouldn't do that unless you LOVE it and that type of research is your hobby.
My advice is to NOT start saving for college until you have your retirement giving set up. Might want to wait a bit too and make sure your kid is up for going to college (no slam intended, but not all kids can go or should go or want to go). I personally have not set up 529 plans for my kids. Instead we put so much into retirement that we can suspend giving to it for a few years if we need to and just pay for college for them out of our income, their working, scholarships, and perhaps some manageable small student loans that they repay later. Don't derail your retirement paying for college.
Vanguard is great for low fees. I do recommend them, but I never recommend specific funds. At your young age, you should be aggressive with your picks. Do some research on REITs even and see if those are right for you -- some amazing advantages with those. Otherwise, you could just pick index funds or spread it out with some there and some in international funds, or do what Dave Ramsey suggests and do 25% each in Growth, Growth and Income, Aggressive Growth, and International.
DO NOT EVER wait for the market to bottom before getting in. Get in when you are ready to get in, and you need to follow those steps above and be debt free except for a manageable house payment before getting in the market.
Good luck.