Originally Posted by lewdog:
There isn't something called a compound interest account.
Compound interest just means interest on interest gained due to the variable of time. It's why those who invest a little bit of money early in life, can have very large sums later while placing less cash in accounts, than someone who starts later in life but places greater capital in account.
That can be accomplished through a variety of devices. Stocks, bonds, basic savings account, CDs. What are you looking to do?
Yeah sorry I wasn't conveying that correctly. I'm 29 and want to find the best route of setting that up.
Are there different rates of interest I can select from any of those options? 5% interest in the account? 6? 8?
Originally Posted by RunKC:
Yeah sorry I wasn't conveying that correctly. I'm 29 and want to find the best route of setting that up.
Are there different rates of interest I can select from any of those options? 5% interest in the account? 6? 8?
That's what I'm wanting to find
If they offered rates like that for saving, we'd all be rich! It's not even close to that simple though. You might want to read/google some basic savings 101 information.
You aren't guaranteed set rates unless it's a savings account or a CD. Savings accounts earn next to nothing (<1% interest). CDs maybe 1-2% but many require a fairly large deposit.
All other options for 5%+ are related to investing and returns are not guaranteed. In these options you theoretically could lose the money you put in or make absolutely nothing. Do you have any retirement options through your employer? [Reply]
Originally Posted by lewdog:
If they offered rates like that for saving, we'd all be rich! It's not even close to that simple though. You might want to read/google some basic savings 101 information.
You aren't guaranteed set rates unless it's a savings account or a CD. Savings accounts earn next to nothing (<1% interest). CDs maybe 1-2% but many require a fairly large deposit.
All other options for 5%+ are related to investing and returns are not guaranteed. In these options you theoretically could lose the money you put in or make absolutely nothing. Do you have any retirement options through your employer?
Well I clearly saw that wrong. I think I got the rates from investing caught in with the others.
Here's what I've got.
-401k-6% employer match. Roughly 40k in so far.
Thinking of adding more myself by adding 1-2% from my check on top of the 6%.
-Roth IRA. Got that in January and have checked it twice. No big movement really.
-Investing: I've thought about this a lot but haven't committed yet. Obviously I would choose a dividend stock, but haven't been sold on one yet. I've thought about safe stocks like AT&T and Coca Cola but am not sure that they are good long term stocks.
I've thought about wanting something that people will still buy even in bad times. That led me to think of Unilever. [Reply]
Originally Posted by RunKC:
Well I clearly saw that wrong. I think I got the rates from investing caught in with the others.
Here's what I've got.
-401k-6% employer match. Roughly 40k in so far.
Thinking of adding more myself by adding 1-2% from my check on top of the 6%.
-Roth IRA. Got that in January and have checked it twice. No big movement really.
-Investing: I've thought about this a lot but haven't committed yet. Obviously I would choose a dividend stock, but haven't been sold on one yet. I've thought about safe stocks like AT&T and Coca Cola but am not sure that they are good long term stocks.
I've thought about wanting something that people will still buy even in bad times. That led me to think of Unilever.
Well good to hear you're definitely on the right track with the 401k and the ROTH. If you need the tax saving benefit, increase your 401k contribution. I'd consider maxing out your ROTH for the year before investing in individual stocks but you definitely don't have to.
I like your thinking on the stocks. Unilever has had a massive jump in the past year. It's definitely a nice pick and relates to everyday products. It's been performing well. It's up to you if you think that continues and buy in now, or if you feel it's over-valued and wait. [Reply]
Originally Posted by lewdog:
Well good to hear you're definitely on the right track with the 401k and the ROTH. If you need the tax saving benefit, increase your 401k contribution. I'd consider maxing out your ROTH for the year before investing in individual stocks but you definitely don't have to.
I like your thinking on the stocks. Unilever has had a massive jump in the past year. It's definitely a nice pick and relates to everyday products. It's been performing well. It's up to you if you think that continues and buy in now, or if you feel it's over-valued and wait.
You are like the homosexual Suze Orman! :-) [Reply]
Originally Posted by Cornstock:
Right now the economic trend has been Quantitative Easing (QE) to stimulate the economy. This involves the central bank's buying Mortgage Backed Securities to infuse the market with cash. This isn't a bad idea, but at least in the US, the consequence has run into a political obstacle.
With all of the capital requirement changes that occurred after 2008, banks are required to keep more cash on hand in case of emergencies. Their Tier 1 Capital Ratios for small banks was 5.5-7%, and for large banks it was even less. Now they are required to maintain over 10%.
What this means is that a huge bank with 10s of billions of dollars of assets are no longer allowed to lend those 10s of billions. It is required to be dead money. This added to more stringent requirements in lending, so banks can only lend to superbly qualified businesses/individuals makes for a disaster that was really unforseen.
Money multiplier theory says that a dollar lent can be multiplied something like 27 times. So if a bank is required to keep 30 billion in dead money, this would have otherwise been an 810 billion dollar infusion into the economy, which would have spurred economic growth. (Imagine your small business getting a small chunk if that).
So the banks are taking the money that is being infused by QE and putting it straight towards their reserves, instead of injecting it into the economy. This is why no one has seen any real effect of QE until recently, now that the reserves are topped off and in compliance.
I know no one likes big banks, but they are an integral part of our economy, and by handcuffing them it hurts everyone. But Bernie and the like don't recognize this and just want more regulations. They need to be loosened up so the banks are allowed to lend.
I know this is kind of long, but it may be the first time anyone has explained to you WHY these new bank regulations are so bad, rather than just saying that big banks are bad and greedy and they deserve to be punished.
This post is riddled with inaccuracies. Capital is not cash on hand. It is a leverage ratio. Small banks have never averaged 5.5-7% tier one capital.
The biggest effect of QE is that it removed toxic and illiquid assets from the books of the largest institutions, which were threatening to create accounting losses for said institutions at the time. This was the huge bailout.
Also, large banks do need to have their leverage constrained because they create multiple layers of leverage by leveraging the holding company, resulting in far lower capital levels. The whole topic is frankly too complicated. That is without even getting into concentration risk management.
Furthermore, there is no formal reserve requirement of ten percent tier one capital. While increased capital levels are being encouraged by regulators, the level of capital is evaluated with respect to the institution's risk profile.
The assumption that reducing the reserve requirement will automatically increase lending is also erroneous. Loan demand has been weak for about a decade now. Furthermore, even if loan demand was stronger, the creditworthiness of borrowers you would be lending to with a lowered reserve would not be nearly as strong. The more competition increases for loans, the more concessions are made by the bank, the more likely the bank is to take losses on that loan.
So rolling back regulations allows for increased malinvestment by institutions that have less capability to absorb those losses. Often time these are exacerbated by a dip in specific types of assets, which is where concentration risk comes in. Sound familiar? Sounds like 2007 to me. [Reply]
Originally Posted by Nightfyre:
This post is riddled with inaccuracies. Capital is not cash on hand. It is a leverage ratio. Small banks have never averaged 5.5-7% tier one capital.
The biggest effect of QE is that it removed toxic and illiquid assets from the books of the largest institutions, which were threatening to create accounting losses for said institutions at the time. This was the huge bailout.
Also, large banks do need to have their leverage constrained because they create multiple layers of leverage by leveraging the holding company, resulting in far lower capital levels. The whole topic is frankly too complicated. That is without even getting into concentration risk management.
Furthermore, there is no formal reserve requirement of ten percent tier one capital. While increased capital levels are being encouraged by regulators, the level of capital is evaluated with respect to the institution's risk profile.
The assumption that reducing the reserve requirement will automatically increase lending is also erroneous. Loan demand has been weak for about a decade now. Furthermore, even if loan demand was stronger, the creditworthiness of borrowers you would be lending to with a lowered reserve would not be nearly as strong. The more competition increases for loans, the more concessions are made by the bank, the more likely the bank is to take losses on that loan.
So rolling back regulations allows for increased malinvestment by institutions that have less capability to absorb those losses. Often time these are exacerbated by a dip in specific types of assets, which is where concentration risk comes in. Sound familiar? Sounds like 2007 to me.
This is why people should buy pennystocks. [Reply]
Originally Posted by RunKC:
Wouldn't it just be better to increase my 401k monthly payment than invest in stocks?
Multiple thoughts on this and no right way is the best answer for everyone.
First determine if you like the funds offered in your 401k. Determine the expense ratios of the funds offered and if there are also employer 401k fees as well. If you don't like the funds offered, consider doing something else with your money such as maxing out your ROTH IRA into funds of your choosing.
People in high tax brackets generally like decreasing their income tax by increasing their 401k contributions for the year. This depends on if your state has income tax, as something like 10 do not. If your goal is to pay less taxes, increasing your 401k is a good option for many.
Some in your situation would say investing in individual stocks is another way to diversify and is much more liquid that placing money in a 401k. Mind you, this doesn't have to be individual stocks either but could be indexes, mutual funds or ETFs that track a sector of the market. These are generally less risky than owning individual stocks outright. If you don't have a large emergency fund to tap if times get tough or you were hit with a large bill, withdrawing 401k money comes with an early withdraw penalty plus paying capital gains tax (ouch!). That's why withdrawing 401k money should be one of the last options for those in desperate need of money. If money was instead invested in a brokerage account, you could sell those stocks at any time to access the money, either paying capital gains tax for winners or getting a tax break for losers. Either way you slice it, this money is easily accessible at any time though.
