June 2009 Weddings
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Investing Question
Sarajoy--I think you're good at this.
I have a lot of cash in my retirement account that needs to be invested. We're currently putting most money into a Target fund with projected retirement in 2040. We've also dappled in buying shares of some stocks (energy companies and GE). We bought the stocks last spring, so they are up a lot since then.
I'm not really sure what to do with the money. Should we put the majority in target funds? Diversify the funds (which should be diversified already)? Buy individual stocks? The account is with Charles Schwab if that matters.
Re: Investing Question
If your Target fund is the same type I have, it should be somewhat diversified already based on your projected retirement date. I'm guessing with 30 years to go you have a moderate to aggressive mix with a small amount of the money going to low-risk stable investments. I too have some money in stocks that have seen really good results.
I'd say your answer comes down to the level of risk you want to take. If you want a higher risk, I would go with carefully chosen individual stocks. If you want further diversification and less risk, I would look into bond options or the possibility of an IRA.
Yeah, it's a diversified target fund and it's up from last year to now. I may continue with that one and buy some shares in another mutual fund too.
I'm not scared of the stocks, I just really don't know what to buy. Looking at the closing values for the last year, apparently you could have bought ANY stocks last year and you'd be doing well now.
Do you have an advisor at Schwab or someone who can help you with this in person or on the phone? Are you sure you even CAN buy individual stocks in your 401(K)? A lot of plans I have seen make you choose from a list of funds.
I do generally like the Target Funds for retirement accounts, and they are diversified already. However, I also think that buying individual stocks, especially ones that pay dividends, is a good strategy in a long-term retirement account (IF you are sure it is an option in your company plan) If it is not an option, and you have extra space in your budget, it is usually not a bad idea to open up an Individual Retirement Account (IRA) in addition to your company plan. You can absolutely buy individual stocks in an IRA account, and you can contribute $5,000 per year. Time is on your side. I can't really recommend specific stocks, but I do think that GE is a solid company and it does pay a dividend. I have a list of high-yielding stocks that I put together, and if you PM me your email address, I would be happy to send it to you as a starting point for your research.
Personally, I have one of our IRA accounts set to go into mutual funds (including a target date fund) and the other IRA account goes into individual stocks. We look for stable, large companies that pay dividends. We usually buy the same stocks each month (GE is one of them) and so build up average costs over time. I also think that buying SPY or another fund that tracks the market can be smart, because many studies have shown that "the market" outperforms individual stock pickers over time.
In our taxable (i.e. non-retirement) brokerage account, we play a little more with active trading. For example, right now we have AAPL, C, S, and some other cheap stocks to try and take short-term profits. We do pretty well in there, but I don't worry as much about diversification, dividends, or quality, as it is short-term "fun" money type of trading. I wouldn't recommend this strategy in your situation.
Please let me know if you have any other questions! I love this stuff (which is a good thing, since I do it all day!)
I also just wanted to point out that an IRA does not necessarily offer less risk. An IRA is a type of account, not a type of investment. In your IRA you can buy bonds, stocks, funds, etc.
Bonds are less risky, but interest rates are very very low right now, and in order to find high yields, you have to go to junky companies or risky municipalities. I also don't think you should have municipal bonds in retirement accounts, as it negates the tax benefits.
Thanks for the info. I've been able to buy the individual stocks in my company plan (it's an SEP), so I think I can pick out anything and place the order. It seems like I'm not too off-base by buying target funds and then picking out a few stocks also. My husband and I also each have a Roth IRA and he's been picking out the stocks and mutual funds for those.
I guess I need to set up purchases to buy more shares of the target fund to use up this cash I have sitting around (we've been buying in stages and trying to use dollar-cost averaging principles). But I should probably pick out a few big companies to buy some more stock in.
The GE has turned out to be great stock. I bought it last spring and it's been doing well, but, then again, I think you could have bought anything last spring and done well.