Investing Thread

[iamshack]

I think he is referring to his paycheck deductions, not his actual filing.

I laughed out loud at Lost's incredulousness.

 

So my company has a 6% match, as well as a separate retirement plan. It's one of the things they do pretty well for us on.

 

I joined the company in July of 08', and it took a few months to get things all set up with my 401k and everything, so basically, I started buying mutual funds right around when everything hit bottom. So I've been pretty lucky. My company uses Vanguard.

 

Anyways, since I may be in the market for a car, and especially a used car, I was thinking of taking a loan out of my 401k as opposed to a standard auto loan, since the loan on my 401k would be a 4.0 % or so, and from what I understand, I'd basically be paying the interest back to myself. My plan allows me to continue contributing and getting my company match while paying back the loan.

 

Good idea? Not a good idea?

 

 

[NorthSideSox72]

I laughed out loud at Lost's incredulousness.

 

So my company has a 6% match, as well as a separate retirement plan. It's one of the things they do pretty well for us on.

 

I joined the company in July of 08', and it took a few months to get things all set up with my 401k and everything, so basically, I started buying mutual funds right around when everything hit bottom. So I've been pretty lucky. My company uses Vanguard.

 

Anyways, since I may be in the market for a car, and especially a used car, I was thinking of taking a loan out of my 401k as opposed to a standard auto loan, since the loan on my 401k would be a 4.0 % or so, and from what I understand, I'd basically be paying the interest back to myself. My plan allows me to continue contributing and getting my company match while paying back the loan.

 

Good idea? Not a good idea?

Unless you are in dire financial circumstances, I would avoid taking a loan from your 401k. You are mortgaging your financial future, literally.

 

You are correct in that you are paying interest to youself, so on a purely cost comparison, its better than a car loan. But... That money now cannot gain with the market, cannot earn dividends, cannot be part of the multipliers, etc. Each dollar that isn't in a 401k now and for the next few years, is 10's of dollars you miss out on later. I'd avoid doing it.

 

[iamshack]

Unless you are in dire financial circumstances, I would avoid taking a loan from your 401k. You are mortgaging your financial future, literally.

 

You are correct in that you are paying interest to youself, so on a purely cost comparison, its better than a car loan. But... That money now cannot gain with the market, cannot earn dividends, cannot be part of the multipliers, etc. Each dollar that isn't in a 401k now and for the next few years, is 10's of dollars you miss out on later. I'd avoid doing it.

Oh I guess you're right. I didn't think of it that way at all.

 

I've basically got no clue when it comes to investing, and this is another example of that.

 

And this is why I asked you guys.

 

Thanks for the explanation. I suppose I should have realized that though.

[southsider2k5]

Unless you are in dire financial circumstances, I would avoid taking a loan from your 401k. You are mortgaging your financial future, literally.

 

You are correct in that you are paying interest to youself, so on a purely cost comparison, its better than a car loan. But... That money now cannot gain with the market, cannot earn dividends, cannot be part of the multipliers, etc. Each dollar that isn't in a 401k now and for the next few years, is 10's of dollars you miss out on later. I'd avoid doing it.

 

Not to mention if you lose your job for some reason, you owe that money back instantly. That applies even if you go to another job.

[iamshack]

Not to mention if you lose your job for some reason, you owe that money back instantly. That applies even if you go to another job.

You don't owe the money back instantly. It would be changed from a loan to a withdrawal. You would be responsible for paying the penalties associated with taking a withdrawal.

[NorthSideSox72]

You don't owe the money back instantly. It would be changed from a loan to a withdrawal. You would be responsible for paying the penalties associated with taking a withdrawal.

Either way, not a good place to be.

 

[iamshack]

Either way, not a good place to be.

Yeah, I think you're right. Thanks!

[Chisoxfn]

I laughed out loud at Lost's incredulousness.

 

So my company has a 6% match, as well as a separate retirement plan. It's one of the things they do pretty well for us on.

 

I joined the company in July of 08', and it took a few months to get things all set up with my 401k and everything, so basically, I started buying mutual funds right around when everything hit bottom. So I've been pretty lucky. My company uses Vanguard.

 

Anyways, since I may be in the market for a car, and especially a used car, I was thinking of taking a loan out of my 401k as opposed to a standard auto loan, since the loan on my 401k would be a 4.0 % or so, and from what I understand, I'd basically be paying the interest back to myself. My plan allows me to continue contributing and getting my company match while paying back the loan.

 

Good idea? Not a good idea?

Bad idea. By and large every investment person out there will tell you not to borrow against your 401K unless you are in a dire situation. You lose out on the multiplier effect and by and large a good percentage of people never end up repaying it or struggle to repay it (no saying you would, but its something easily forgotten in general).

 

However, I would point out that if you are a member of a credit union and have good credit (700 +) you might be surprised at the type of rates out there. I know for me, my bank was ready to give me 2.9% on a used car for up to 60 months.

 

Note: Nevermind, as I go forward, I'm pretty much agreeing with Matt

[lostfan]

lol at me for forgetting about the withholding.

 

Borrowing against your 401k is still better than taking money out of it.

[Iwritecode]

Anyone know when the new Illinois state tax of 5% takes affect? I've heard that it's retro-active to Jan 1 and I've also heard not until July 1.

[mr_genius]

Anyone know when the new Illinois state tax of 5% takes affect? I've heard that it's retro-active to Jan 1 and I've also heard not until July 1.

 

from what I've read, it's retroactive

 

http://chicago.cbslocal.com/2011/01/14/inc...ctive-to-jan-1/

 

CHICAGO (WBBM) – Now that Gov. Pat Quinn has signed the 66 percent Illinois income tax hike into law, you will soon see the effects in your paychecks.

 

The increased taxes will be deducted from Illinois workers’ paychecks in a few weeks.

 

As WBBM Newsradio 780’s Bernie Tafoya reports, the tax increase is retroactive to Jan. 1, so technically, we’re all about two weeks behind in paying.

[NorthSideSox72]

Borrowing against your 401k is still better than taking money out of it.

They are really one in the same. When you take a "loan" from your 401k, you are literally cashing out shares to fund the loan. The only difference between that and just plain selling out of it, is that with the loan, you don't get the tax penalty... unless you leave the firm, miss a payment, get fired or laid off, etc.

 

[lostfan]

I just found out that my dividends don't reinvest if I have margin debt, it goes to cash and then goes to paying the debt.

[caulfield12]

I'll echo the comments about Vanguard.

 

My dad a long time ago put me in a very conservative/traditional stock fund called Nicholas Fund out of Milwaukee. Of course, in the late 90's, like everyone, I got greedy and sold low on it (just like everyone giving up on the antiquarian Warren Buffett) and bought high on one of those "high tech/computer driven" model funds at American Century in Kansas City.

 

I've made the same mistake before picking up Bill Miller's funds (Legg Mason Value Trust) when he had beaten the S&P 12-13 years in a row. Bill Nygren and Oakmark weren't too far behind, both had impeccable track records and have underperformed.

 

I actually have Berkshire stock now (3 shares, haha) and mostly Vanguard Index funds, international/emerging markets, small/large cap, some gold (and mining stocks), utilities, a good mix.

 

It's always those basic rules like never have more than 10% of your net worth in any one asset (including houses) and take 100 minus your age for the amount of money you should have in stocks....100-40, I still should be at least 60% in growth stocks, and I'm probably closer in reality to 80-85% (the rest is in bond funds, some CDs and money market, etc.) in a bid to make up for the last decade of lost growth in the market.

 

Should have listened to my dad and not been overcome by hubris. I still remember buying JDS-Uniphase at $110 per share (it was only 100 shares, but still) riding it to $140, not selling, and seeing the whole thing collapse...as my uncle said, there's no such thing as a bad profit, I could have made a great 27% return on investment in less than a year and I got greedy.

 

Well, I'm sure there are millions of stories out there that involve losing a lot more than $10,000 the last 13-14 years. At least I wasn't a Madoff investor. Something like that just makes u sick to your stomach, all my mistakes were made with nobody to blame but myself, I won't blame brokerage houses and places like Edward Jones, everyone was caught up in the same spirit, and it happened with houses too, luckily I sold my house in 2004 and made a pretty good profit.

 

 

 

 

[StrangeSox]

Vanguard's total market fund has done quite well for me over the last 18 months or so. Decent dividends, too.

[NorthSideSox72]

I just found out that my dividends don't reinvest if I have margin debt, it goes to cash and then goes to paying the debt.

This depends on the nature of your margin agreement, which is in part dictated by the rules of the clearing houses. If you are going to trade on margin (which I recommend individual amatuer investors do NOT do unless they are truly expert), you'd better be intimately familiar with the rules in your agreements for margin and buying power. Those documents should be readily available to you on your broker's site.

 

[Y2HH]

If you use margin accounts, it means your gambling, because you're playing with money that isn't yours. It's a fools game.

[Balta1701]

If you use margin accounts, it means your gambling, because you're playing with money that isn't yours. It's a fools game.

Which is of course why Wall Street is built on it.

[NorthSideSox72]

Which is of course why Wall Street is built on it.

Calculated margin risk at an institutional level is an entirely different ballgame than an individual, part-time investor taking out a loan (which is what buying on margin is).

 

[Y2HH]

Calculated margin risk at an institutional level is an entirely different ballgame than an individual, part-time investor taking out a loan (which is what buying on margin is).

 

If you don't have the money, you shouldn't be investing it. But yes, institutional level is completely different, I'm talking about individuals. Investments should be made with money that is yours, free and clear...individuals should never toy with margin accounts...it's gambling with an uncertain future.

[lostfan]

I did get the dividends, it just didn't go b/c of the holiday.

 

I'm not gambling, I know what I'm doing. I treat it the same way I treat my credit cards, I buy something before I have all of the cash, then I replace that money as soon as I get it a month or two later. It's not something I do habitually.

[Y2HH]

I did get the dividends, it just didn't go b/c of the holiday.

 

I'm not gambling, I know what I'm doing. I treat it the same way I treat my credit cards, I buy something before I have all of the cash, then I replace that money as soon as I get it a month or two later. It's not something I do habitually.

 

It's a bad BAD idea.

[lostfan]

BP is back to paying dividends. Nice.

[bigruss]

BP is back to paying dividends. Nice.

This makes me very happy. I am very happy I bought a bit of their stock during the summer, just wish I had more to invest at the time.

 

Edited February 27, 2011 by bigruss22

[bigruss]

Anybody have advice for someone who is looking for growth stocks or funds? Im looking to invest long term about $8000 in the next month or so and want to start looking into possibilities. I currently have a bit under $1000 combined in BP and VZ stock.