The rule of 72 works with any fixed interest rate. 10% is just for easy figuring...
If potential accessability is important, you could consider investing equal amounts over say, a five year period.
2,000 for one year at a fixed rate
2,000 for two years " " "
2,000 for three...
2,000 for four...
2,000 for five...
the one year rates are less than the two, three, four...etc.
If, in one year you don't need the 2,000, roll it into a five year at the higher rate. Eventually, if you haven't cashed out and if you continue to roll them into the five year as they mature, you'll have investments maturing at the five year rate each year.
Worth it if you want to know exactly how much you're going to earn and if interests rates are decent.
I started this way.
It was good to have it invested while I made some other decisions.
I know I said I had no advice... but just a tiny bit of food for thought. Although it's very tempting to spend it on debt reduction - it may be better off invested.
I borrowed money recently to by a car. I could have bought the car outright, but the money would then be gone. Instead, the 'car' money is invested in a monthly income fund. That generates more than enough to pay the interest on the loan.
More advice! (What a liar!) Make an appointment to meet with someone at your bank. They'll answer lots of questions (and create more!) Don't decide with just one visit.
If you want to invest the money in a retirement account you have to look at the long horizon. I put $2000 into an IRA in 1998. I invested it all in the NASDAQ when NASDAQ was at 5000. The value dropped to $400 at one point. It is presently over $3000. Retirement is a long term investment. Enough of my story.
When it comes to what to invest in the best advice I have seen is you need to be able to sleep at night. If you stay up worrying about your money you need a safer investment.
By investing in funds you spread your money out over a wide area and it is less likely to be hit with large swings. If you are worried about the stock market then invest heavier into bond funds. The idea behind the bond/stock ratio is that as stocks go up bonds go down, and as stocks go down bonds go up. This means you have a fairly stable growing investment that won't get you the big wins but keeps you away from the big losses as well.
I just invested in a free trial subscription to the motley fool news letter.
I think I will start super-safe. I do the max in an IRA which I can contribute to as the years go on and the rest (or most of the rest) in something even more safe like an annuity. I know you guys advise against it and I may change my mind, but I can always add new investments later - right?
Annuities usually have a penalty if you decide you don't want it.
I think the key here littlek is that you have "found money" that you want to know what to do with.
Lets start with that premise.
In financial planning the first thing is to have a nest egg for emergencies.
That usually means 3-6 months worth of cash in case you lose your job etc. Suze Orman and Motley Fool will probably both give this basic advice.
That cash should be kept in a safe account. Usually a money market has the best interest rate vs a simple savings account.
I believe Orman's advice after that is to pay off all your credit cards. Getting rid of a 8% or 18% interest rate is better than the 3% you will get somewhere else.
After those 2 things are done you can look to invest. I have heard Orman advise money is better spent on education than invested if it will get you a better job.
Retirement accounts are great places to put extra money. This can vary by your situtation.
My personal recommendation is that if you are self employed to look at a SEP. It allows you to put more of that money into an investment now. The longer it is in the more return you get over the long term. SEPs can be rolled into a ROTH later if you take a job somewhere else and no longer contribute to it.
my portfolio allocation is
5% money market/cash
47% stocks
15% mutual funds
6% preferred stocks
25% annunities (in all else tanks I still have the annuities)
last year I had total earnings/growth of 8.2%
Your situation may be special, littlek. You would use the conventional ira to reduce taxable income. If you get your taxable income to the zero point, don't put any more into the conventional ira that year. Parados is right, USUALLY, money market will do better than CD, and you might be able to make a case for self employed. I seem to recall one year you got stuck paying employer and employee portions of social security. If that's still the case, you might investigate the SEP. I'm unfamiliar with them, but it sounds worth looking over.
A further consideration might be growth verses income. A tax sheltered plan, ira etc, is dandy for income producing products as you won't pay tax on income till withdrawal. You would waste the benefit if your investment were entirely in growth investments that have no current yield in need of shelter.
Roger..... You more or less lost me. Maybe it's just too late in the day for me to think clearly about this type of stuff. I never ended up doing the taxes that way 2 (or was it last year?) years ago because the IRS plainly printed that in-house child care provider was not considered self-employed but a house-hold employee. I would have owed thousands in taxes if I had claimed to be self employed. Because I work for my sister now, they have been paying me via the un-taxed family gift. Up to $10k per family member can be paid to another family member tax free on a yearly basis (that's how I understand it). My sister's CPA thinks I am in dnager, tax-wise, so I don't really know what's what anymore.
But, I don't pay taxes now.
I think I have heard both points on motley fool, parados: paying off debt and having 3-6 months living expenses. They're great points.
My head's spinning (no it's NOT the wine). Thanks everyone for all the info, I'll be trying to understand it all over the next few days. I'm headed to my parents' this weekend. We'll talk about fun stuff like retirement accts and living wills.
If you are going to invest in the stock market, index funds are not the way to go. Look for a fund with a broad mandate and a history of good achievements (you need to find someone who consistently beats their index of reference). Make sure the same people who got good results in the past are still running the fund. Also factor in wether the fund is a high risk or a low risk one, if the fund tends to loose more money than their index of reference in bear markets they are likely relatively high risk.
Do not just go to some random bank and look at what they have to offer, take the time to look into funds from every bank in your area. Having a good broker running your fund can make a world of difference, and if you plan on investing any decent amount of money it will be time well spent. And compare the entire history of funds not just the exerpts they peddle.
You could split money between a couple of good funds to spread your risk, no need to keep all your eggs in one basket.
