need to do financial planning

What are your financial goals? E.g. Are you saving for retirement, a house, paying off a debt (list all loans)? What is your age? For now, two things in which you can start getting some experience are (1) CD ladders and money markets; and (2) asset allocation. For (1) you should be able to obtain a minimum 4.5% yield on that $20k savings right now, via short term certificates of deposit. Check for what the competition is paying (on CDs and money markets at

. For (2) spend some time experimenting with the free online asset allocations tools linked at . Ask questions about what these tools do. The stock market is swinging, but one has to try to remember that the safest way to invest in stocks is only when one does not need the money for say ten years or more. One also has to be able to emotionally weather ups and downs during that ten years. Smartest thing to do is to invest regularly for the long term, allocate per a plan, and do not mind exactly what the stock investments are doing until close to retirement.

If Yield is what you are after (with safety of principal), I would suggest a money market fund (yielding between 4 and 5%). Short term CDs might be an alternative.

You don't mention you age, type of employment, and a few other key points. The cash should be moved mostly to either a money market fund, with instant access, or to laddered CDs, or bonds. Laddering is when you invest say, 1/4 of your funds in each maturity, 1 yr, 2 yrs, 3 & 4. When the 1 year matures, you use the proceeds to buy a new 4 year maturity. Over time, all you funds will be enjoying the rate of 4 year yields with money coming due each year. You can change this so money comes due every

6 months, or the ladder goes out further, as you wish. With the yield curve inverted or close to it, the rates may not be much higher at 3 years than 1, you need to check.

I'm sorry you had a bad experience. For the long term stocks do provide superior returns compared to cash (CDs bills notes, etc.) But you do need to find your own comfort zone. Do you have a 401k? Does the company provide any matching? This is a good place to bump your return, and you can choose a fund within the 401 that's conservative if you wish. You can read this group's archives to understand volatility, and how long term stock investing is less risky as your time horizon lengthens. JOE

First off, you have a bad car deal. You are not a major corporation, so you have no business doing a lease. A lease sets you up to take all the risk, and get none of the rewards. You don't even own the thing after making all those sky-high payments.

At 40K per year, you can afford a car that is in the $4,000 to $8,000 range. Get rid of the van, buy something in your price range, and pay cash.

Second, having cash sitting in a checking account is silly. It might as well be under your mattress. Get it invested, and get it working for you. You can get 6% CD's, and the stock market should return you about 11% over time. How about splitting it half way?

Security means no growth. You might get a few percent with security, but prices of everything you buy goes up to match. You have retirement coming up, and with people living 20 and

30 years in retirement, you may need a million or two dollars just to afford to eat (unless you have a good pension or a rich relative about to kick the bucket). You cannot afford security with retirement bearing down on you like a runaway train.

Rather, you have to get growth, and you need the extra boost that you get from tax deferred growth. So, start with maxing out your 401K and/or IRA options. Mix up the funds a bit so you get exposed big cap growth, mid cap growth, and small cap growth, plus some overseas, and my favorite of the day, high dividend yield funds.

You only get so much time in life, and at 40K, you only get so much money. You cannot afford to waste it by letting funds sit idle, or by buying expensive luxury cars that are just going to rot away in a few years. Get the basics covered first.

-john-

Does it make sense to buy out the van that i am leasign. i am paying out 4.9% lease rate. based on what u state, the bond yield is around

4.5 %.

I havev a stable job for the timebeing and 33 years of age. i think retirement is long way from now.?

Seede

joetaxpayer wrote:

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I don't know the terms of the lease, beyond the 4.9%, but CDs are now over 5%, so it's likely a wash, not a big difference. Since you have a home with a reasonable mortgage, your next step is to invest for the long term. The difference between a 10% return and a 5% annual return is $1.2M vs $541K. These are the savings you'd have at 60 if you saved 10% of your gross income (which I presume to be $60,000 from the net 40K number) each year, in addition to the 20 already saved. Use 'the long way from now' to your advantage, in 27 years till you are

60, the market will rise and fall, with one to three 'crashes' along the way, but it will certainly be higher in 27 years time than it is today, and will exceed the returns from cash in the long term. JOE

I agree with Joe's advice and John Weeks' advice.

Well, one of the first rules of financial planning is to maintain an emergency fund to cover expenses. Since I have no idea whether you are the only breadwinner, I will assume that you are. That means you need 6 months times your monthly expenses, of cash or easily convertible to cash, in reserve. I would say, since you are leasing and not outright buying, your cash is just about enough at $20K. You have not provided enough information to be sure but you might want to do the emergency fund calculation before you decrease your cash position.

I disagree. Having a large sum of money sitting idle is a luxury that few people can afford. If you are in debt, you need to pay off those debts because interest would be killing you. Even if you are not in debt, you need to be building your retirement portfolio. My suggestion is to have some financial alternatives, such as a home equity loan or credit cards ready to go in case of an emergency. If an emergency happens, use those tools to get though the crisis. Then, work hard to pay off those bills, or the next time one of your investments are up for a roll-over, divert the money to pay off the loans. A final component is to do what you can to avoid emergencies. The most common of which are household and car problems, many of which can be avoided by doing simple routine maintenance.

-john-