investing advice

Bear in mind the conventional wisdom is to have about six months to a year or so of living expenses in a money market fund or similar, for emergencies. What's left may be invested for retirement, a downpayment on a house, whatever.

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This is an example of why "conventional wisdom" is often such a bad idea. Having 6 months worth of living expenses stuck in a poor performing investment is financial stupidity. Life is short, and money only has value over time. Once you lose this time, the value is gone for good. A far better idea is to invest this money, put it to its highest and best use, and come up with an alternative to meet those occasional emergencies. Having a credit card, home equity line of credit, and checking account with overdraft protection are great tools for such occasions. They are all relatively inexpensive, charge only when used, and can be paid back over time or by tapping into your investments at a convenient time.

-john-

Having that much money sitting in a minimal performing asset over time is a huge error. Move it lock, stock, and barrel into some very low cost mutual funds. I'd put a big block into funds or ETFs that track major indexes like the S&P and Wilshire or Russell indexes. If you want to be aggressive, then take a part and split it between some US big cap stuff and some emerging market funds.

-john-

The Roth IRA limit this year for you is $4000. I'd suggest you max that ($333/mo). You don't mention the account balance or options within the

Last note - if your employer should offer a Roth 401(k), jump on it. You are in the 15% bracket (see

I think what you list are horrible tools, because (1) the interest rates are ridiculous; and (2) current money market rates at reputable institutions are about 5%.

If there is a market downturn, this "convenient" time may not be for years, during which time one racks up a hefty credit card interest bill.

There are a lot of ways to finagle one's finances so this "emergency fund" is always there as a buffer, yet is doing more than just sitting there.

I don't have a strong objection to using one's contributions to a Roth IRA as at least part of an emergency fund, either, since contributions may be withdrawn penalty-free at any time.

Otherwise, we disagree, strongly. And don't go calling people's comments "stupid." That's not constructive, duh.

This isn't the 'popular wisdom', John, but I tend to agree. I'd only add; A 401(k) loan is typically a low interest rate, and 5 year payback. So if the choice is between funding the 401(k) or trying to build that emergency fund, I'd take the 401(k), right up to the matching, and then fund the Roth. The Roth that can be tapped with no penalty. But in general, there's a good slice of the population for whom the lower emergency fund can work just fine, only needing enough cash for a couple pay cycles' worth of expenses.

What gives me real heartburn are those who are proud of their 6 months' expenses in a cash account, but credit cards at 15% running balances that are a similar figure. When I suggest they simply wipe out the 5% account to pay off the 15% accounts, they look at me like I have two heads, "we'd have no emergency fund then." At least the OP is earning

JOE

My credit rating is undoubtedly better than yours. Address your remarks to the general population, who, if you've done any reading on this at all, are frequently paying interest through the nose to credit card companies.

Are you serious?

Do you remember when it was down 15% for the year?

I reassert that keeping money sitting

You're also forgetting that part of many allocation strategies is to have a certain amount in cash. This can be massaged to make up one's emergency fund as well.

We disagree. Plus, you need to watch your ad hominems.

My advice would be to put 1 months worth of expenses into a savings account. I'd guess this is around $2600, maybe less (32k/12months). Key being this is expenses (bills) you pay regularly for one month.

I would then look to John Weeks advice of investing the rest. I would contribute a full 4k into the Roth each year. You could put $500/ month into the Roth. after 8 months this year it is maxed. Next year when the contribution limit increases to 5k, you are maxed after 10 months. By budgeting this way, you have an emergency fund of $500 each month. if you need the money, skip the IRA payment, knowing you have 2-4 months to make up the payment by years end.

For investment suggestions, I like using similar allocations in 401k and Roth. I have had 4 401ks over the last 10 years, and I have worked for the same company with 4 name changes (4 401k changes). To have to "reallocate" the Roth IRA because my 401 is changing seams silly to me. If you plahn to switch jobs frequently, my advice would be to use the Roth as the core allocation (meaning it contains all components of Domestic Large Cap, Mid Cap, Small Cap and Foreign Large Cap and Small Cap). Then use 401k to mirror this/compliment this.

I am 34, my allocation is 45% domestic large cap, 15% domestic mid cap, 15% domestic small cap, 15% international large cap and 10% international small cap/emerging market.

My Roth has most of these components (missing international large cap which will be added in May) My 401k is missing the mid cap fund, so I allocate to another small cap fund. My 401k is missing an international small cap fund, so that allocation is to international large cap. My wife's 401k is missing a good small cap fund, so that allocation is to a mid cap fund.

If either my wife or I change jobs, we use the same allocation in the new 401k. Many of the Roth funds chosen are among the best in their category or closed... I wouldn't want to sell out of a closed fund because of something in my 401k "looked better", only to find out 401k is changing next year because we got sold off/ bought out again.

If a 401k offered me the choices you listed, I would choose

this is based on my personal allocation I use for my wife and I... everyone's allocation will be different.

I'd look for average returns of around 8-10% from this. Good years will approach gaining ~10-25% and bad years could be as bad as -10% to

-25%.

Fidelity has online portfolio allocation tools. Try that one first. You can specify your own risk tolerance.

Each of those funds has a $10,000 minimum investment... so you would need to pick one. Based on that I would personally choose FSTMX. Get yourself broader exposure for your money!

Just my 2 cents, Shhhh

It is probably not wise to assume a 5% MM rate for any length of time. We are in an inverted yield curve situation and these periods have not historically lasted long.

I posted thinking that 5% was not too far from the historical MM average, such as this average may be for the last 30 years or so when money markets have gained "popularity." But I could be wrong.

That's a somewhat different issue, IMO.