Savings advice

[{aspiring_to_clarity}]

I have some money sitting in my regular savings account earning less than 1% interest. Obviously this is not ideal. I was wondering what experience everyone has with things like ING Orange Savings account and the like. I would rather my money be doing something for me. It's not a huge amount, so I also wonder what the minimum requirements are for accounts like this.

Also, I figure I should do something about setting up a retirement savings, but I am clueless as to how this works (my job does not offer 401K etc). Any advice would be appreciated...I am thinking IRA? I am not interested in volatile stocks...something pretty safe would be best for me right now as I get my feet wet.

Thanks.

[RT Wolf]

The question there is what's your time horizon? And what's your risk tolerance? How quickly will you need access to this money? f you're saving for a few months to a year, bonds or money market are a good, relatively safe investments that pay better interest than most savings accounts. But it can take between a few horus to a few days to get your money out.

I'm not very familiar with American retirement systems, but I keep hearing that RothIRAs are your best bet. This may help:

Retirement [Fool.com: Retirement Center]

About the stock market, I seriously don't recommending getting into it unless you have a time horizon of at least 3 years. Another thing to remember is that over the long term, the volatility of stocks gets averaged out and its done pretty well over the long term (decades, for example). IMO, volatility isn't a risk if you're a long-term investor, its just a cost of doing business, so, for me, a risk is what are the odds of me losing my capital. That's capital risk, then there's gains risk. Still, about risk tolerance: If you toss and turn and can't sleep, its too risky for you. For example, I have a high risk tolerance, I'm young and my time horizon is a few decades. Stocks are my investment of choice (value investing, ftw).

For you, though, I would recommend index funds. They're basically mutual funds that just own all the stocks in the index, thus almost directly matching the returns of a market (less transaction costs and management fees, etc). In the long term, the S&P has done between 9-11% (depending on how you calculate it), and seeing as how most professional mutual fund owners don't even match that, its an excellent investment. Again, it can be volatile, but over the long term, it averages out.

I also wrote this post a while ago:

$13,000: What Do I Do With It?

This might be interesting, too:

"Ordinary People, Extrordinary Wealth"

And this:

1st Steps to Better Finances?

You've made a great decision to educate yourself about finances. Good luck! And don't get scared away by the reading, its really not that much. Feel free to ask me any questions (here or via PM).

[{aspiring_to_clarity}]

To start out, I would prefer to do something less risky that I can understand and manage myself (I don't 'get' the stock market). I am not at a point where I have solid plans about what I want to do for the future regarding money, I just know I don't want to be totally without a savings and that it's best to start thinking about retirement sooner (late 20s) rather than later.

Thanks, RT, for the advice. I will look into that link. Happy investing.

Another point I didn't mention originally: for the moment, I would like there to be some fluidity to the money. I would like to be able to access it somewhat quickly in an emergency. Does that affect where I should put it?

[JiriNovotny]

Originally Posted by {aspiring_to_clarity}

Another point I didn't mention originally: for the moment, I would like there to be some fluidity to the money. I would like to be able to access it somewhat quickly in an emergency. Does that affect where I should put it?

Yes and no. Today, almost everything has great liquidity (except more exotic investments like domain names or some fine art), but volatile investments are not always profitable to sell. For example your stock portfolio might be down 40% when you need the money, but in a few years, it might be up 40%, so if you wouldn't want to take loss you wouldn't be able to liquidate it. Diversification fixes this a little, if you own 20 stocks, it is very probable that if they are diversified enough some of them will be always in green numbers and thus ready to be sold with profit.

If I were you, I would probably use this service called "Champion Funds" and slowly build my portfolio: Champion Funds [Fool.com: Mutual Fund Research] (it's not an affiliate link) - but keep in mind just like with stocks you won't be probably able to liquidate your whole portfolio without losing money on some of the investments, but as a whole, it might stay in green numbers.

Funds are generally much safer than stocks because they are diversified. Plus these guys at Fool.com pretty much outperform the market. I am a subscriber of another fool.com service - "Hidden Gems" - which recommends small cap stocks and I am quite happy about it. YMMV.

[Alchemiss]

I would recommend getting a minimal working knowledge of stocks because they are a great way to make money over the long term. The riskiness of stocks varies with those in the Fortune 500 (big companies, many have been around for years, if not generations) being fairly safe bets. The best way to invest is automatically so you don't try to time the market. A great place to start would be with a 500 Index Fund. The risk is low and the returns are much higher than a savings, checking, or CD account. The key is not to check it too often--think long-term because short-term variations (called volatility) might make you nervous. The other nice thing about an index fund is there isn't a guru picking stocks who wants a cut. The fund tracks an index which is a predetermined set of companies.

I highly recommend Vanguard's funds because they are low cost (i.e., they don't take a big cut for themselves). The Vanguard 500 Index Fund requires $3000 to start. https://flagship.vanguard.com/VGApp/...FundIntExt=INT

Depending on how much you have, you could put some in an Index Fund and some in a Money Market account (more liquid). https://flagship.vanguard.com/VGApp/...FundIntExt=INT Or you could use a money market account to automatically invest until you reach the $3000 if you don't have that much yet.

[{aspiring_to_clarity}]

Thank you, Jiri and Alchemiss. I am taking all of this information and trying to formulate a plan that will work for me. I appreciate everyone's viewpoints. Keep 'em comin'.

[RT Wolf]

There's a number of ways to make money on the stock market, obviously, but the basics of stocks is this:

Say you own a company and want to raise some capital (for whatever reason, expansion, debt reduction, etc) but say that you don't want to, or can't use other options for raising this capital (too much debt already, or you need mroe cash than you can earn quickly enough), and you decide to sell ownership in the company. That means that you'll sell pieces of your company over to others in return for their money. On the stock market, public corporations' shares ('shared ownership') are traded based on (supposedly) how worthy of being owned the shares are. How worthy they are is determined by different ways, including prestige of hte company, hype around the company, or good old fundamentals like how much money hte company is making.

I know that can be a confusing defintion and its very condensed, so you might like to read a longer article here:

Stocks Basics: Introduction

Now, what the stock market IS is very different from the many ways to make money off of it. I, personally, judge a share as if I was buying a piece of ownership of a company and try to think like an owner and shareholder value. Others can think of it as the lottery.

Hope this is a useful beginning.

[{aspiring_to_clarity}]

Thanks, RT. I guess the stock market seems scary to me because I don't really understand it well. I will look at that link and see if I can get a better handle on how it works. It has seemed like the lottery to me. I was trying to think of a way to describe my apprehension and you hit the nail on the head.

In any case, you've all given me a great deal to think about. I guess I better get to it!

[OnionJack]

Hi Aspiring,

Your gut reaction is first to begin with. Start with the very basics. Online savings is a great way to go. There are a ton of options. The two off hand I can think of are ING Direct and HSBC.

For liquidity, I'm not sure about HSBC, but ING now has a nice online checking account that I've signed up for. This gives you a debit card, and you can transfer money between the accounts, for quicker access if you need it. I can't really comment on HSBC in anyway because I don't bank with them, but know of a few others who do without a problem.

This near term change and your savings rate go from .5% to 4.5% with 0 risk!!

Definitely consider riskier options. Very first I would actually start with basic credit. Increase/Start overdraft lines. These don't cost a penny usually, unless you borrow. Then they're cheaper than Overdraft. A kind of just in case. A lot of people don't bother with them. But the umbrella when it rains is always helpful.

Then turn to the stock market basics. Mutual Funds and ETFs are where you want to start. The setup of them can be similar,but there are differences. So you want to decide on which is the best route for you to take.

So RT is right on point, start with indexes. These can be both Mutual Funds and ETFs. Just don't expect huge returns without huge risk, and either way there are upsides and downsides.

[{aspiring_to_clarity}]

Onion Jack, I do have a line of credit with my bank.

I think something like ING would be the way to go to start with, just to have the money making a little interest while I research the other options. I can keep putting savings in there while I figure everything out and then take out enough to invest in some 'riskier' options while still keeping a good amount in ING for liquidity and safety.

Thanks again.

[CStrunk]

I use Washington Mutual for the majority of my personal banking. I had a regular savings and checking account and they gave me free online banking. (Then again, they should all give free online banking. I've never seen a place charge for it. Hmm.) The Savings account was giving me something smal like 0.45% interest. I switched it to an online savings account and it now gets 10x that amount.

If you looked at your accounts online before, it's really NO different. Except I never found out if they'd take money from me and put it into my online account through a store branch. I never really got around to asking that one. I figured that I'd be able to deposit into my checking account and then move it over, worst case.

Oh, I also like Vanguard for funds. They have rock-bottom expense fees. They don't have exceptional performances, but if you pick a good fund, the low expense rating will make up for it over time (I hope).

All in all - online savings is a no-brainer.

[{aspiring_to_clarity}]

Thanks for the info, CS. I will add Wamu to my list of things to look into.