Fresh College Grad

Congratulations on good thinking and having no credit card debt, etc. Maxing your 401k up to employer match and maxing your Roth (4000) are good ideas. However, first I would lay out a five year financial plan on a spreadsheet based on your short and long term goals. How much cash will you need in 5 years to start your MBA program? Do you have an emergency fund of 3 to 6 months expenses? When do you plan to buy your next car? How much can you allocate each month to pay off the 7.65% loan?

My daughter's 401k plan is through Fidelity and they offer not only Fidelity funds but a PIMCO bond fund, et al. So you will have to look at what your plan offers specifically. However, at your age go mostly with stock index funds - 80% domestic and 20% international. If you think that is too aggressive then go 10 to 15% in a bond fund and the balance in stock funds.

Good luck, BeachBum

What a great place to be, and to have escaped college with only a manageable debt load rather than enough debt to choke a 3rd world country.

I think you are doing everything right as far as maxing out your retirement options. I'd pay back the 7%+ personal loan, and the 6%+ student loan. I'd pay the minimums on the other two student loans. Those are cheap, and they can be deferred if you go back to school.

Beyond that, you need to decide how badly you want to go back for an MBA or masters. You are looking at maybe $50K per year for 2 to 3 years. That is a lot of money. A typical person is not likely to make that money back, at least not quickly enough to make this an investment. But you are very young, so maybe it will work for you. But at least go into it understanding that a MBA or masters might be more of an academic exercise than a brilliant financial move. That is OK as long as you know what you are getting into.

If you want to go to school the right way with a boat load of money and not take on a truck load of debt, then you are going to need to continue to live more or less like a student, and save as much money as you can. Since this event is 4 or

-john-

Many people underestimate the value of the stock purchase plan. Consider this example ROI calculation. You invest $100 per month in the spp. At the end of the quarter, you get $353 worth of stock (15% discount), a gain of $53. You have the stock to hold or sell. Your average investment in the spp for the quarter is $150. Next quarter another $53 gain on an average investment of $150. Same for the third and fourth quarters So at the end of the year, your gain is $212 (4*$53) and your average investment is $150. The ROI is 141%!

Now all the naysayers will point the price of the stock might change, that there is a holding period and that you can't find another investment to put your gains in. This is all true but you still made

I do not recommend holding your employers stock in the long term. It is too risky to have your job, your retirement and your savings all in the same company.

Regarding your Master's, I suggest you ask your employer if you could be considered for Executive MBA where the company pays for everything: tuition, books, etc..

Frank

teaks wrote:

If "teaks" is sure about going back to school, should savings be done in a 529 plan (with conservative investments, of course)?

Just curious, what makes you say this?

I have seen a lot of evidence that MBAs make up to $20k more than bachelors. At a $15K annual increase it appears he could make his tuition expenses back in less than 15 years (all subject to risk-free opportunity costs, student loan rates, tax-deductability of expenses, yada yada yada).

The degree also allows for more job opportunities in the future that would not otherwise be available.

I am curious because I am considering an MBA also, if not a Masters of Accountancy (which is more limited in future job opportunities).

I don't really follow that one. The way I see it, you're comparing a *monthly* investment to an *annual* return.

To make this right, divide your annual gain of 212 by 12 months (turning the annual gain into a monthly gain) and re-run your numbers.

It's really even simpler than that. You invested 300 dollars over 3 months and have a 53 dollar gain. Your "return" is (in a simple, naive sense -- disregarding the "time value" over that 3 months) is simply 53/300 which at near 18% for a 3 month investment and *is* big DoublePlusWin for you... but hardly a 141% return.

There's no way in h*ll your example is a 141% return.

I'm not an accountant (and I didn't stay in a Holiday Inn last night ) and don't even know what goes into the ROI calculation ... but anything that works like your example ... comparing a monthly investment to an annual return ... It's gotta be a useless calculation if you ask me. Apples to apples. Oranges to oranges, and all that.

Assuming your employer imposes a maximum contribution to the ESPP, put as much as you can into it, after optimizing retirement contributions as advised by others.

Sell the stock immediately to minimize capital loss risks. The point is to take advantage of the 15% discount. If your company's limit is 10% of salary, this equates to a near risk-free 1.5% increase in annual salary. I doubt many people would reject that. (Actually, it's a /minimum/ of 15%. If the stock goes up during the enrollment period, it's bigger than that.)

Immediate sale makes the ESPP purchases "non-qualified" because you didn't hold it 2 years. You'll pay regular income tax on the discount price, but that's basically a gift. If you gain or lose anything relative to fair market value at purchase, that portion is taxed at capital gains rates.

The cash can go back into your general operating fund for whatever purpose you choose, including other investment. The only problem this causes some people is cash flow. Because your purchases are quarterly rather than semi-annual, the maximum out of pocket at any time is limited.

We did this with my wife's employer (HCA) until they went private. There were occasional small capital losses because of the lag between grant date and transaction close date. Those losses were always generously offset by the 15+% discount, even taking taxes into consideration. I had no interest at all in holding the stock.

FranksPlace2 wrote: So at the end of the year, your gain is $212

At the end of the year you have invested $1200, you own $1,411.76 of stock which is a ROI of 17.65%. This is exactly the 15% discount you got.

Speed - The math for ROI work out quite differently, The 17.65% you cite is the first step. If the participant is paid weekly, the average invested amount is half the money, no? So the three month return is

The key point is that money is on standby much of the time, it's not like the investor actually sees that return, but the dollars out of his pocket do see it all. FP2's math and mine makes the case for those who are choosing between paying of a high interest card vs the discount stock deal. A 17% boost based on 6.5 week's average money is worth doing above and beyond anything else.

JOE

Well you can define oranges to be apples and orangutans to be Cadillacs. It doesn't make it so. Return is profit. Investment is principle paid. Return on Investment is profit divided by principle. Since contributions are made at specific times we can look at the profits at those specific times and calculate ROI at that very instant.

I apologize if the columns don't line up. This is really boring, but you've forced me into it:

week Principle Value ROI

There is no 147% return. Not no how, not no way, not ever.

Speed - If I offer you $11 in return for your $10 (forget risk, assume I am your brother) I know you will say the return is 10%, and you are right if this occurs in a year, lend me $10 today, I give you $11 in a year. If I give you the $11 in 3 months, the annualized return is 46% (1.1^4). This is not complicated. Whether or not we roll over the loan is irrelevant, ROI calculation have to take time into account.

I quickly admit the stock plan purchaser does NOT see this huge percentage, as he can't get that rate on the money before it goes in, nor after the sale, so the compounding effect is not fully seen. For argument sake, I can borrow money a day at a time, through a home equity line. If you ran the numbers on a spreadsheet, you'd find that it makes sense to use that line to fund the stock purchase each week. The limit (i.e. the point where you'd not do this) is if the rate to borrow exceeded that 140% number. (I ignore the fact that the stock can rise so the gain is more than the 17% per period, or fall the day it hits the account, I didn't want to inject a banana into the discussion.)

Your numbers completely ignore time. My $11 for your $10 is good for a year, great for 3 months and super for a month. Let me know where I've gone wrong. FWIW - Yahoo provides an annual rate of return function for stock tracking. I used it to track a portfolio I was setting up, and had to laugh as the next day some stocks looked as if they anualized to 1000% growth. Well, 2% a day can do that. I had no dream it would that way in a month or a year. JOE

I thought all ROI calculations ignored time? That's why they are often scrutinized when used. Annualized return does, however, use time.

ROI = (Gain - Investment costs) / (investment costs). If you have $100 and you make $100 your ROI is 100% whether that's over

Wiki also explicitly states that time is not a factor. It does, however, state that annualization is often implied because ROI is misleading if not put into context.

From Wiki "ROI does not indicate how long an investment is held. However, ROI is most often stated as an annual or annualized rate of return, and it is most often stated for a calendar or fiscal year. In this article, ?ROI? indicates an annual or annualized rate of return, unless otherwise noted."

I absolutely see the point, but I purposely used the term annualized return for my response. If a return is to ignore time, speed's math is correct, but I've never (well, not since two burgers times 19 cents = 38 cents) had a money problem that didn't include time. And while wiki starts with 'does not indicate [time]" it ends with "annualized rate". JOE

JOE,

I agree completely, and I wasn't picking sides. ROI without time is essentially a worthless measure. I am just pointing out that the two of you are arguing the definition of two different measures. ROI v. Annualized ROI.

Both definitions are TECHINICALLY correct. It just depends on which one you are using. Annualized is of course more informative and valuable. But ROI is not BY DEFINITION annualized (its just often assumed).\

Y'all have a good weekend.

I agree with this. Sometimes it can be difficult to determine how much extra education will help a person. Judging from your signature John, you work in the technology profession as do I. I think most people in tech would agree that an MBA would not earn a substantial amount more than a bachelors degree. If you have job experience, this is even more the case. Obviously other fields this can be very different. The OP would have to do the research and make this decision on his own. I know many people that look at continuing education more from a personal achievement perspective than from an ROI point of view. Unfortunately this puts them into a position where they incur another 50k+ in school debt without making up for it in professional compensation. We talk a great deal in this group about risk vs benefit. In my view, deciding to incur more debt in an additional degree would be no different. IMO, if it can't make me a substantial amount more compensation over the long term, I can't see the point in wasting my time or money on it. As was mentioned earlier, an ideal scenario would be to see if you can convince your employer to pay for furthering your education.

-JB

teaks,

Good job so far, you are young, have the 4-year degree under your belt, no unmanageable debt and seem to have your head screwed on straight. Where did you learn to save and manage your finances? Did your parent persuade you or something that you happened to pick up along the 21 years?

Again good job...IMHO cil

Thanks everyone for your advice and input! I think I have a good idea of what I'm going to do - I might post again soon to get opinions on my company's offerings from Fidelity. I'm also in a tech field - electrical engineering. I'm interested in pursuing an MBA mostly because I think these two degrees together will open up a lot of new doors for me.

Joshua Bilsky wrote:

Hi

I'll chime in with virtually everyone else here.

1. take the 4% match on the 401k. That's a 100% return before you start! You aren't offered that opportunity in investing too often in your life.

I would invest the 401k in a low cost equity index fund (Fidelity certainly offers one). If you have enough, split it evenly between an international equity index fund, and a domestic one. What you ideally want is as wide a spread of (equity) investment as possible, at the lowest total cost (MER or Management Expense Ratio).

(my thinking being this money is going to compound for 40 years. You want to take the maximum risk with it, since even a bad 10 or 20 years might well be followed by a very good period. Take the most risk, get the highest return).

Say over the next 4 years you and your employer invest $15000 together in your 401k. Say also it returns 8% pa (low cost equity index fund) over 40 years, which is a bit below historic returns. That would be $325k when you retire-- 43 times the $7500 you invested. You'll be glad you did this 10 years down the road when you have a family and a big mortgage and are struggling to save any money at all.

1. pay down your non-student debt ie the highest rate debt you have, as a number 2 priority. Your low interest loan doesn't strike me as too critical.

1. a top MBA is a 0k expenditure. I believe they are worth it (whereas if you are not in the top 15 or so MBAs*, I would rather do an exec or part time MBA programme ) to your career. But you need to start planning for that.

2. in light of 3, live as cheap as you can, subject to still enjoying life. A 7 year old Honda Civic, say, may not be flash, but it will likely get you to work, and the beach/ mountains on the weekend, without too much hassle and at a reasonable fuel economy.

The rest (company stock plans etc.) I leave to more informed posters.

• for want of argument: Harvard, Stanford, Wharton (Penn), Chicago, Northwestern (Kellog), MIT, Columbia, Yale, NYU, Berkeley, Michigan, Duke, Darden (Virginia), Tuck (Dartmouth), and overseas, London and INSEAD. I am sure I missed one or two good programmes in that list -- your mileage may vary.