I saved $ 100,000 in cash, thinking of making a few changes. I do not yet know what these changes should be.
I gave $ 60,000 to my financial advisor, who handles my 401 (k). Of course, he just wants to increase total assets to increase his income by 1.5% management fee.
I would like to have three ideas on where to put the remaining $ 40,000 that is available if I find a one-year master’s program, a new home, or a lower-paying job compared to my high school job. Something liquid, but earns interest and earns more than a bank savings account. I’m thinking of the Vanguard Index Fund. I am single, apartment owner, no children.
I thought of you as an alternative to my current financial advisor because I want to diversify.
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Dear Katie Cash!
Congratulations on being a good saver. You mentioned several options for where to put the money, and expressed your feelings about your advisor.
Several advisors manage 401 (k) s unless they are part of an asset brokerage firm. Company Plans 401 (k) Hire an investment manager to oversee money and work with plan participants. Your company may have checked with a brokerage firm or consultant, but that doesn’t mean they’re right for you. Do you trust them? Have you interviewed counselors before hiring them to manage your extra money? Is an advisor a trustee, which means taking care of your interests?
The 1.5% commission is very high. Typically, there is one percent that, in addition to investment management, gives you advice on taxes, financial planning, real estate planning and money management. These fees are worth paying if you are making a profit from the relationship. Otherwise you may pay too much.
You show an understanding of the motivation of the fee. Nowhere do you mention your confidence in their instructions and advice. I feel a question mark over their abilities. The fact that you are asking for my advice shows that it may be time to add another professional to your team, someone you trust.
What strikes me is the wording of your comment: “I gave my financial advisor $ 60,000.” Many people say this, sometimes demonstrating a lack of ownership of their money and a lack of understanding of their capabilities. Consultants follow instructions you. Knowing where your money is now invested is the key to the next step with your savings. Remember that you asked this investment manager to control the money for you; you did not give. Ask more questions, learn details and make informed investment decisions. This is your money – and your life. You have to take responsibility for that.
For what you pay your current advisor each year, you can hire an objective, paid certified financial planner (CFP) for a few hours to review your investment. They can tell you the best way to invest or save current money.
As for your next investment step, it depends on how the remaining $ 60,000 is invested. A proven rule of thumb for silver is that the sooner you use it, the less you want to store it in dangerous places. With your plans in the air, cash, certificates of deposit (CDs), credit unions and banks are the safest, despite low but rising interest rates. You can look not only at your local bank, as national discount brokerage firms will help you open an account and then buy CDs, finding the best prices across the country.
The Vanguard Index Fund is inexpensive, but many are equity funds. Until you decide what changes you are making, investing that money in the stock market is a bad choice because the market is long-term. There are some Vanguard funds, such as the Vanguard Limited-Term Tax-Exempt Fund VMLTX,
who invest only in bonds.
If you need money in three to eight years, bonds can be a good choice. Series I savings bonds, known as I bonds sold by the federal government, yield more than 9%, but the purchase is limited to $ 10,000.
The most important thing is to clarify your life choice by considering your financial capabilities. I don’t know if you didn’t name them because you didn’t decide if you wanted the money to make more than one. Think about working with a financial therapist to make your life goals fit your financial goals.
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When it comes to investing, enjoying your money and your life will help you make better decisions. At this point, I would turn to a wise man who told me many years ago, “If in doubt, do nothing.”
CD Moriarty is a Certified Financial Planner, CNET Reviewer and Personal Finance Speaker. She blogs at MoneyPeace.