Do you invest?

[William2]

We make a sizable salary and the benefits while not physician benefit packages are still nice at least in my location. Where do you put your extra income besides bills and the obvious past tuition loans that made you a nurse?

Do you invest? Where? How did you choose?

I put 5% in an employer based Roth IRA and 1% in traditional 401k for 6% employer match. I was told to put more in Roth for now until I start seeing a need for the tax benefits of 401k which would be at a time when I am filing jointly with someone. But I'd thought I see what 1% does in that category for now.

But more importantly and towards the purpose of my question, where else do you invest? Money market? CD's? Mutual funds? ETF's?

I made over a 3rd of my annual salary in overtime and extra shift incentives. I checked my tax liability and risk and I won't be paying taxes. In fact I will still see a return. I'm young and would like to continue this trend for now. I'm interested to see what other members do.

[ThePrincessBride, MSN, RN, NP]

I'm presuming you are just at the beginning of a long career? It makes a lot more sense to contribute as much as possible to your employer 401 (not Roth) for maximum deferred taxes. That allows the money you would have paid in taxes (if you had contributed to a Roth) grow for the next 30 or so years. That is pretty huge, and should be more than the Roth benefit of less gain (lower deposit amount), but no taxes owed on any investment gain.

I will say that it does behoove you to put aside already taxed income in an ordinary investment account for a lot of reasons: rainy day (illness perhaps), wedding, and house downpayment. You can take out up to $10,000 out of a retirement account without penalty for a first home (or remodel) - after that there is a 10% penalty before taxes are taken out (no taxes on Roth withdrawals). Another way to free up retirement money is a loan of up to $50,000 against a 401. But if you can be really disciplined every year, you will certainly end up as one of the "millionaires next door" and will be far better off than perhaps 98% of the country's retirees.

Actually, if OP is at the beginning of his/her career, he/she is presumably going to only have increases in income and he/she may not ever be in a lower tax bracket again. Therefore, I would recommend contributing to the Roth as all the gains (which can be tremendous) would be tax-free.

I also would only recommend using the Roth as a retirement account/oh no, **** is getting real fund. Not a second savings account. (There are high-yield interest online banks that return 1-2% in interest that would serve this purpose. You also can only withdraw the contributions...you can't withdraw the gains until after 59.5 or you face a 10% penalty.

Also, I would NEVER recommend a 401k loan unless in dire straits (like facing cancer or something else as catastrophic)...a last resort. Not only are you robbing yourself of the gains that withdrawal could gain, you are also at risk of the 10% penalty if you are laid off from your employer and cannot pay the 401k loan back (in full) immediately.

[Jules A, MSN]

I'm presuming you are just at the beginning of a long career? It makes a lot more sense to contribute as much as possible to your employer 401 (not Roth) for maximum deferred taxes. That allows the money you would have paid in taxes (if you had contributed to a Roth) grow for the next 30 or so years. That is pretty huge, and should be more than the Roth benefit of less gain (lower deposit amount), but no taxes owed on any investment gain.

Roth 401s are great too, but for you, really only after you have maxed out your regular 401 and your regular IRA. You are making really good money and the more you put into regular retirement accounts also increase your net income because it will drop you into a lower bracket (I agree that if you become married and have two incomes, the benefit may be even greater).

I will say that it does behoove you to put aside already taxed income in an ordinary investment account for a lot of reasons: rainy day (illness perhaps), wedding, and house downpayment. You can take out up to $10,000 out of a retirement account without penalty for a first home (or remodel) - after that there is a 10% penalty before taxes are taken out (no taxes on Roth withdrawals). Another way to free up retirement money is a loan of up to $50,000 against a 401. But if you can be really disciplined every year, you will certainly end up as one of the "millionaires next door" and will be far better off than perhaps 98% of the country's retirees.

As you know, you have numerous choices on where to invest. Before you go nuts with investing choices in your 401, check your employer's retirement account carefully. If it is managed by an insurance company, you will be paying extra fees which really add up over 30 years (big money). Insurance company plans will be contained in an annuity shell, which nets them 1 percent a year by itself. Look at ticker (stock) symbols. The name may be similar and mirror a large well known fund, but carry a different ticker symbol. That means extra hidden fees, often hard for even financial specialists to see. These odd fund names will be there to mimic "load" funds to give the person who sold the retirement plan to the hospital to earn a commission.

If this is the case, talk to your benefits person about your ability to "rollover" your plan into your own self directed IRA. Most plans allow this while you are still working - the most common time rollovers occur is changing jobs. As a nurse traveler who has worked for many agencies, I've done this a lot. I contribute the max the plan allows, put it into a money market fund (in the 401) to preserve my equity, and as soon as my assignment is over, I roll it over into my own IRA (no limits to rollovers and they don't impact your annual IRA contribution). In your case, perhaps once a year would be enough. Doing this has always brought me more benefit than any employer match (which you may be foregoing if you roll your account over), but you will have to do the math in your case and reflect also on how long you will stay at this employer. That vesting period is there to get you to stay, and you will always leave money on the table when you leave this employer (if their plan does have a vesting period).

After that, I recommend Vanguard mutual funds. Fidelity mutual funds carefully chosen are OK (I have retirement accounts with both companies and confusingly, with either you can choose to buy their competitors funds), but Vanguard is effectively a shareholder owned company or non-profit versus for-profit Fidelity. Think member owned credit union versus for-profit banks. Thus Vanguard is always the low fee winner (and again, those fees will add up to tens of thousands of dollars or hundreds of thousands of dollars over 30 years). Choose an "index" funds for both the lowest management fees and the cost of operating the fund (administration and the fees from stock churning of an actively managed fund) - there are ETF mirrors of the big index mutual funds that have similar low fees that are OK too. Index funds always beat the actively managed funds over time. Since you are (I think) just starting your career, I'd stick to stock funds. In 15 or 20 years, you can start to add bond funds.

Don't buy individual stocks as a practice as you cannot diversify enough to be safe. But buying small amounts of a couple companies for fun is OK. Perhaps a company you like personally like Apple or Amazon. Try companies you believe have a long future. Changing your stock picks annually is costly.

I'd disagree about the blanket statements of which funds to purchase, Roth vs employe 401K or to avoid purchasing individual stocks. It sounds like an excellent strategy for you but not necessarily one for all.

[llg, PhD, RN]

I emphasized retirement savings and grad school for most of my career -- and now as retirement is only a few years away, I am happy with the $1.2 million dollars I have in those accounts (& expect to have at least 1.5 in there when I retire.) When I was younger, I put about 10% into the retirement plan wherever I worked. Since finishing grad school around age 40, I have putting in the maximum amount allowed by law (which comes to about 30% of my income.)

I also consider my investment in graduate school to have been a good decision. My graduate degrees qualified me for higher-paying jobs that were easier on my body than acute, bedside care. That investment paid off with higher income for a few decades as well as the type of job I can do in my 60's without hurting my body so much. Really, think of graduate school and career planning as an investment in your future.

Finally, I invested in a home -- a condo -- paid off the mortage at age 60. It's only a so-so investment, but I really like where I live. So I think it has been worth it. It's also nice to know that when it is time for me to move into a retirement community, I can simply sell it and use that money to "buy in" to the retirement community of my choice. The proceeds from the sale of the condo should not only cover the cost of the "buy in," but also the cost of moving, new furniture, etc.

[Scottishtape]

I don't, but I wish I did. I have zero concept of how to invest.

My husband and I were taking about what we would do with my salary once I graduate and start working again, since his pay more than covers our monthly bills.

The best I could think was to put 75% down on our mortgage, and the other 25% into savings.

I have no idea if that's even a good idea, but it's where we're starting, I suppose.

[Horseshoe, BSN, RN]

My DH has made a fortune in our retirement account by investing brilliantly in commercial real estate. It's actually amazing; he just has a midas touch. Thank goodness for him, because I don't have business/investing savvy at all.

[NedRN]

I'd disagree about the blanket statements of which funds to purchase, Roth vs employe 401K or to avoid purchasing individual stocks. It sounds like an excellent strategy for you but not necessarily one for all.

Certainly no investing strategy fits all. However, I don't think you will be able to find any but a wacky fringe of professional advisors that recommend investing a large amount into individual stocks (TV shows touting certain issues imply you can do well with their recommendations for example.

The general advice I read suggests assets of over a million before investing in individual stocks makes sense in terms of gain versus risks. And even then, the hassle and costs of running what is basically your own mutual fund (or trusting a manager to do it) is not worth it until you are truly wealthy already. Then you may be looking at hedge funds anyway.

[Kitiger, RN]

Rule 72 gives a good approximation of compounding growth. To use Rule 72, pick an average annual growth rate, the annual rate of return one can expect to make. Now divide 72 by this number; this is how long it will take the money to double. Dividing 72 by a growth factor of 8 comes to 9. Therefore, if one invests money at 8% interest compounded, the money should double in approximately 9 years.

1. Read The Wealthy Barber, by David Chilton.
   
2. Go to Vanguard.com and read their information under Planning & Education
   
3. Have 10% deducted from your paycheck and automatically invested. If the money doesn't pass through your hands, it is easier to save.
   
4. Invest in a Vanguard Target Retirement Fund.
   
5. It's best to start young. Second best is to start now.
   

If you invest a set amount each year, you can use the following formula:

Sum of an annuity of a series of D deposits for n periods at an interest rate of i:

n

(1+i) -1

= D _________

i

Deposit $1,000 per year for 45 years, and earn 8% compounded per year:

45

(1+.08) -1

= $1,000 _________

.08

= $386,505.62

If you invest an amount and leave it alone, use this formula:

Future value of a sum D invested for n years at an interest rate of i:

n

= D (1+i)

Deposit $20,000 for 45 years, and earn 8% compounded per year:

45

= $20,000 (1+.08)

= $638,409

(n is an exponent)

[NYC-NP87, MSN, APRN, NP]

Great thread!

I am also planning on purchasing an investment property which will hopefully pay it's own rent and throughout the years, it's value will increase, I have a good amount in savings but just do not know what to do with it. Perhaps real estate is the way to go. Like a few of you mentioned, I wish my employer matched 401K! They do not match, but I wonder if it is a good idea to contribute it to that account regardless of the employer matching it or not?

[NedRN]

Yes, by all means contribute to your 401! As much as you can afford (or slightly more) up to the limit your employer allows. IRA contribution limits are far smaller.

Of course, if you think you will be successful in real estate and have near positive cash flow, not tying up your capital in retirement accounts is better. But see what the 401 allows. There are mechanisms by which your income propery can be held in your 401 which effectively increases your free capital.

[NYC-NP87, MSN, APRN, NP]

Yes, by all means contribute to your 401! As much as you can afford (or slightly more) up to the limit your employer allows. IRA contribution limits are far smaller.

Of course, if you think you will be successful in real estate and have near positive cash flow, not tying up your capital in retirement accounts is better. But see what the 401 allows. There are mechanisms by which your income propery can be held in your 401 which effectively increases your free capital.

NedRN, Thank you very much for your sound advice, hence I love the allnurses community!

[Natasha A., CNA, LVN]

Absolutely. I highly suggest learning about financial literacy. Do not only rely on 401k because its all pre-tax and we do get older (long term care health costs are not cheap). Try to become a self insurer in the long term :)

[NedRN]

Regular 401s are technically pretax. However there are two caveats. One is that if you have a low income year, you can move funds from your regular 401 to a Roth IRA. This is a taxable event, but if you are paying a minimal to zero tax on this transaction, you are way ahead. I know I've done this at least twice. That money is now sitting in a Roth tax free when withdrawn, as is any appreciation on the the capital.

Another consideration is what your annual income from all sources will be after retirement. If it is low, or at least lower than before you retired, you can't lose by deferring paying income in retirement accounts (ignoring any lost opportunity costs from say real estate investments).