[Welly Wu]

I need (free) expert financial guidance especially from stock traders, bankers, and certified financial planners from our members in such professions. Please don't mistake this as bragging as I really have nothing financially compared to others, but I am seeking expert opinions. The reason why I decided to create this thread is because I did some shopping around for a certified financial planner and the expenses and fees scared me away. I am not in a financial position to have a definitive and true need for such services at this point in my life until I secure a higher paying career outside of BN. So, here I am...and you too.

First, I am single and 28 years old. Currently, I earn $8.75 USD per hour multiplied by 40 hours per week. I am in the 10.6% Federal & NJ State tax bracket and I recently joined the Fidelity Investments 401(k) retirement & savings program by electing for automated 15% payroll deductions on a weekly basis. I get direct deposits at midnight every Friday. So, here are the numbers and questions:

50% is going to the Fidelity Growth & Income large cap mutual fund,
25% is going to the Fidelity Diversified International Fund,
15% is going to the Fidelity Freedom 2030 Blended Fund,
10% is going to the Fidelity US Bond Index

BN offers corporate matching funds through its company stock BKS:
$1 : $1 for the first 3% I contribute to my FI 401(k)
0.50 cents for the second 2% I contribute to my FI 401(k)

I read in Kiplinger's Safe Investing magazine that investing in my company's stock, Barnes & Noble, should be classified as a high risk and I should not hold more than 5% of BKS in my total asset allocation strategy. SO, I elect to exchange 95% of BN company matching funds back into the FI funds by following above asset allocation strategy weekly.

I maintain 10% of my total assets in US Savings series EE 3.5% and I Bonds 4.8%. I still need to purchase more this December 2005 to maintain that equilibrium. I also automatically invest 15% of each BN weekly paycheck into my ING Orange Savings MMA @ 3.4% which is FDIC insured and a liquid asset; I do this because if something horrible happens such as becoming very ill or unemployed (BN employment is at will), then I will have at least a 3 month supply of funds to cover my fixed monthly expenses which are very low. I also have a ING Orange Savings CD fixed at 3.8% APY that will mature next summer 2006. Last, but certainly least, I tithe 15% of my gross montly income to the Christian Broadcasting Network due to my religious beliefs. All of this is automated electronically.

Here are my major goals in my life. I simply do not feel comfortable investing all of my money into the FI 401(k) because I do not desire to work at BN next year once I secure my career at the US Postal Service as a letter carrier (they provide both a 401(k) and Federal pension fund) and I expect to be admitted to a Masters of Fine Arts in English Creative Writing graduate program for September 2006.

I have no credit card debt, no consumer debt, and no collection agency is looking to collect from me. I also have no credit history either. The only debt that I own is my US Direct Student Loan which has been consolidated at 3.0% fixed APY and I am on the standard 10 year repayment plan which is in good standing because payments are deducted automatically from my checking account.


Questions:

What am I doing right?

What am I doing wrong?

Am I being too conservative with my money?

Should I consider shopping around for a secured credit card to build my credit history?

Should I consider adding the Fidelity Small Cap Stock to my equities portfolio?

Should I open up stock trading account (such as Ameritrade, Schwab, HarrisDirect, TD Waterhouse, etc.) and begin researching safe stock picks to invest in?

Thanks for reading. I will be watching this thread. I look forward to constructive and useful replies so I hope this thread will stay sharp and focused.

 

[Welly Wu]

As you might have guessed, I have refrained from posting specific dollars and cents amounts for both my protection and your protection as well. I simply am looking for expert financial advice about my inchoate financial strategy, not necessarily soliciting advice on how to move certain amounts of my money to different investment vehicles. Thanks!

 

[Oski]

First of all, congratulations on such a great attitude towards savings and what seems to be a very rigorous approach. Second, just as a caveat that I'm not a financial planner, but just play one on TV.

You should be commended for having no consumer debt and to start your retirement savings at such an early age and at a healthy level.

The things I'd change is probably to decrease your bond holding. You are too young for such a conservative strategy. Maybe the 10% you have in the 401(k) is okay, but I certainly wouldn't be putting money into gov't EE bonds at 3.5% because it has a long maturity and because that yield is just too low. Given CPI of approximately 3% the effective yield on that is just 0.5% which means your money is not going to buy much more in the future than now. I would put this into a stock account and maybe choose an index fund that mirror the S&P 500 or something. This because historically the S&P has annualized yield of about 12.5%, 80% of managed funds do not outperform this index, and it's fairly liquid.

Also with the Fed indicating quarter point raises in Fed Funds, you can expect your ING Savings Account to go up to probably 4.4% in at the end of next year. The blended savings rate will therefore be greater than the CD yield of 3.8%, not to mention the benefit of liquidity.

You should also have liquid assets that will cover 3-6 months of living expenses in case of emergencies.

I'm also impressed that you manage to allocate all these % to various investments and contributions, which means you've really managed your expenses. But at this point you should also look to increase your income if possible.

 

[Orpheus]

well, welly, let me preface this to say that i am definitely NOT an expert by any means. but i will give you an honest, and i believe intelligent and wise, opinion to start things off. i'm sure someone will be able to comment on your fund choices....

my opinion is that right now you should not be investing that much in your 401. if your company is doing some sort of matching, only invest up to the percentage that they will match. don't go beyond that. if they are not matching at all, then don't invest anything.

why?--cause the simple fact is that you're not making very much money.

now, what to do about this?--cause i know you're thinking about retirement and all... but when your income is low, you need money that can easily be accessed when needed. putting into your 401 essentially locks it up, and you can't use that money any more for 1/3 the century. same with the IRA stuff. your goal for now should be to generate income. you can't do that investing in retirement.

in the mean time, you should be making liquidable savings in an investment account. this should go towards a house when you're able.

but the greatest investment you should be making right now is in your schooling--so you can actually make more than $9/hr. and that will do more for you than any mutual fund holding. any investments you make right now will be quite insignificant.

that's my opinion.

 

[zotjen]

I am by no means I financial expert either. I think Orpheus made some good points though. They way things are now, you should keep your investments as liquid as possible. Regarding the 401(k), although you are still young, imho you are never too young to start planning for your retirement. Even if you put a minimal amount towards it each month, it's still worth it and will get you in the habit of saving towards it each month. I would avoid stocks at all costs in your position unless you have a lot of experience with the market or if you have some "play" money you can invest with, neither of which I think you have.

 

[Oski]

Quote:

Originally Posted by Welly Wu I read in Kiplinger's Safe Investing magazine that investing in my company's stock, Barnes & Noble, should be classified as a high risk and I should not hold more than 5% of BKS in my total asset allocation strategy. SO, I elect to exchange 95% of BN company matching funds back into the FI funds by following above asset allocation strategy weekly.

This is only because you will then have exposure to BN with not only your employment (current cash flow) but also with your retirement. That’s just putting all your eggs in one basket. Think about what happened to Enron employees. But since you are leaving BN soon, if you are bullish on BN in the future, I don’t see anything wrong with having larger than 5% of BN in your account, but again it’s got to be based on your views of their future growth.

Quote:

Originally Posted by Welly Wu I maintain 10% of my total assets in US Savings series EE 3.5% and I Bonds 4.8%. I still need to purchase more this December 2005 to maintain that equilibrium.

I know I mentioned this before in the above post, but I really strongly urge against this, for the reasons already stated above. In addition, you view this investment as safe because it’s backed by the full faith and credit of the U.S. government, and often U.S. treasury bonds are the benchmark for risk-free yield. But you are much better off just putting the money into your ING Orange account, if anything because you’ll end up with a much better yield, especially with rising short term rates (we’ve had a few years of generation low interest rates, and it’s time to revert to the mean). In addition the Orange Savings account is FDIC insured for $100K, just like any other bank…so that’s also backed by the government if you are worried about losing your money.

Quote:

Originally Posted by Welly Wu Should I consider shopping around for a secured credit card to build my credit history?

You are establishing a credit history by virtue of paying your bills on time and having no balances. Same if you have a car loan and you are paying that on time.

Quote:

Originally Posted by Welly Wu Should I open up stock trading account (such as Ameritrade, Schwab, HarrisDirect, etc.) and begin researching safe stock picks to invest in?

You have enough exposure to the equity markets (your 401k), now it’s time to diversify. Save money for a down payment on a house or condo. Wait until the market cools off in the next couple of years and be ready to pull the trigger on a good opportunity.

But if you choose to open up a stock account to stash the money, I would go with an index fund that tracks the S&P 500 (which is a basket of the 500 largest stocks, so effectively a proxy for the stock market as a whole), instead of trying to be a stock picker. As I mentioned previously the majority of professional fund managers who do it full time for a living do not beat this index.

Quote:

Originally Posted by Welly Wu Should I even consider looking into ETFs, REITs, annuities, munies, etc.?

I think you should keep it simple for now. You are on the right track overall.

Quote:

Originally Posted by Welly Wu once I secure my career at the US Postal Service as a letter carrier (they provide both a 401(k) and Federal pension fund) and I expect to be admitted to a Masters of Fine Arts in English Creative Writing graduate program for September 2006.

What do you plan on doing with your graduate degree in creative writing? In a way, your graduate degree is also an investment. You have to figure out how much it’s going to cost (also take in account of the opportunity cost if you won’t be able to work full time) then calculate that against what you expect to make in the future as a result of this degree (the incremental income). The extra amount of money you expect to make per year divided by the cost will give you your return on equity. But again, if it’s your life long dream, then you should do it even if doesn’t necessarily make financial sense. But really look ahead at how you want to live, support your family, etc. and choose your path accordingly (but it has to be balanced with what will make you happy, challenged, and fulfilled).

I’m still amazed that you manage to do all that and buy all the audio toys with your current income. Are you living at home with your parents?

 

[antiant]

http://www.investopedia.com/

 

[plus_c]

Hi Welly,
I'm not a CFP (actually, I'm not even out of college yet), but I am doing a business degree, and I feel like I might be able to add some insights that might be helpful here. (that, and I'm in a course on financial planning right now, and this is helping me study for the midterm

)

So, here are the things that stick out at me:
1. In general - GINORMOUS KUDOS to you for even thinking about saving at all. You're doing so much better than the average American simply by doing anything. Your 401(k) strategy is good - from what I understand in your post, you're a "set and forget" kinda guy, and you've chosen your strategy accordingly. This is good. You could, theoretically, make more money by trying to stock pick, but I advise against this - stability is a wonderful thing.

2. Limiting your exposure to your employer's stock is a good thing. Period. Keep doing this.

3. I'd actually try to get out of the bonds. Your ING account does almost as well for you, with the added advantage of being able to get at that money if you need it. Bonds are much less liquid, and I think in your situation, you'll value the liquidity more than the incremental return. If you really want the return, I'd put all that money into your stock funds.

4. If you end up changing employers, you can roll over your 401(k) into an IRA of some sort - I recommend a Roth IRA - for a younger investor such as yourself, the Roth comes with the most advantages.

5. If you plan on buying a house at any point soon - BUILD UP A CREDIT HISTORY AND DO IT NOW. You need at least three pieces of credit for a reliable credit report, so two credit cards in addition to your student loan will do you nicely. Pick a card that gives you reward benefits, don't be excessive with your CC spending, and pay off your bill in full every month. That way, not only do you get the cool rewards (whether they be hotel nights, frequent flyer miles, or whatever), you get a month of free float on your expenses, and you build your credit history. Credit cards are NOT inherently evil - if used correctly, they can be an asset in how you plan your short-term spending. Judging from the fact that this post exists as well, I'm sure you have the discipline to use a credit card in a way that is most advantaged to you.

Good luck with everything!

 

[Canman]

Welly, forget about the financial planner. Unless you have a personal contact, a good one will not give you the time of day since they won't make much money on a small account. A small account in the financial planner world is less than $50,000.

Quote:

Originally Posted by plus_c 4. If you end up changing employers, you can roll over your 401(k) into an IRA of some sort - I recommend a Roth IRA - for a younger investor such as yourself, the Roth comes with the most advantages.

plus_c gave some excellent advice.

Concerning your 401k, it is my opinion that you should consider placing less money in 401k and placing the maximum amount in a Roth IRA. While 401k deposits are pre-tax, their earnings are taxable. A Roth IRA, on the other hand is funded with post-tax wages and is not taxable. Since you are in a low tax bracket and plan to eventually be in a higher tax bracket, it is wise to pay the tax now while its still low. Note that I still think that you should contribute at least up to the company's matching portion. Another factor to consider is that a US Postal Service job has excellent retirement benefits if you plan to stick with it for the required period to lock in pension.

Quote:

Originally Posted by plus_c If you plan on buying a house at any point soon - BUILD UP A CREDIT HISTORY AND DO IT NOW. You need at least three pieces of credit for a reliable credit report, so two credit cards in addition to your student loan will do you nicely. Pick a card that gives you reward benefits, don't be excessive with your CC spending, and pay off your bill in full every month.

I can't emphasize this enough. Get a credit card, use it and pay it off every month. It costs you nothing and gives the benefit of floating your purchases interest free for 20 or so days as well as keeping track of expenses. You need a personal credit history for reasonable rates on personal loans such as a mortgage or car loans.

 

[radrd]

Considering your age and what you make, I'd stop spending money on this stupid hobby and put as much money as possible in a place with no risk where you can get to it easily. The bottom line is that you aren't going to save enough to make any investment strategy pay off in the long term until you get a better job. Think about how inconsequential whatever you save now will be compared with what you can save when you make $50k a year?

 

[jar]

You may want to move your ING savings to emigrant direct, a similar company currently paying 4.0%. This makes it an even better idea to ditch the bonds.

 

[av98m2]

Considering how much you're making, I'd freeze all head-fi gear purchases and limit it to maybe a few CDs a month tops. Especially since you already have top-line equipment. If nothing else, this will allow you to save more money. Try to keep it simple and not get too fancy. This will make it easier to sustain over the long term. I'd ease up on the Starbucks as well. You'll be suprised how much more money you save per month if you avoid that place! See if you have any other less than necessary expenses that you can reduce or eliminate altogether. Finally, try to get a better paying job (have you tried applying for adminstrative positions, or creative/advertising related positions? I know some guys with similar qualifications working as copywriters), don't waste that college education. Good luck.

 

[plus_c]

Quote:

Originally Posted by av98m2 I'd ease up on the Starbucks as well. You'll be suprised how much more money you save per month if you avoid that place!

OMG YES. I made my own coffee every morning over the summer instead of buying from Starbucks - at a savings of $1.75 a cup every morning, it was huge! Even buying nice expensive coffee beans I cut my coffee costs in half.

 

[1911]

the man is doing a good job but i agree at his age he should lower his bond holdings. i am impressed he has international stocks as well.
i agree with canman. you should only do the 401 until the company match and try to maximize roth. roth is one of if not the best handouts from the govt other than mortgage tax deduction.
with a govt job as a letter carrier you will earn a decent salary especially if you move into administration and you certainly sound like a bright guy. they make over 100,000 a year. based on your discipline it sounds like your financial picture is good but the plan needs tweaking. maybe the govt will even pay for grad school under the numerous continuing education programs they offer.

 

[loveheadphones]

Your strategy looks good. You need to find out when the BN matching contributions vest. I also recommend splitting your retirement assets into 401k and roth IRA's. You may be contributing a bit too much to retirement, I would probably have a total of 10% combined (401k and roth).
As others have noted, in your 401k you probably don't need bonds. Here's mine for comparison:
24% fidelity small cap independent
23% mid cap equity index (s&p 400 B)
23% equity index (s&p 500)
15% intnl equity index (MSCi-EAFE)
15% fidelity diversified intnl
My reasoning is that i'd like 30% intnl, 70% domestic, and I think a mutual fund guy can pick smallcaps and intnl's.
I would stay away from individual stocks. If you receive a financial windfall, my recommendation is ETF's or DCA'ing into an index mutual fund.
Also, remember that your ing savings account and CD's issue interest, given to you on 1099s, which means you'll have to pay taxes on them. At your tax rate, it isn't so bad, but make sure that you look at all your options.
Well, that's my pretty vanilla advice.
Finally, much respect for the tithing. That is quite a sacrifice.