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Posted by teaks on January 18, 2007, 5:03 am
Hello, I'm new here and am looking for some advice for a new college
grad. Here's a little background info on me:
I'm currently 21 and recently began a full-time job paying around 60k.
My company matches 401k at 4% and has a decent stock purchase plan
(quarterly buy-in at a 15% discount of lowest price of either first or
last day of quarter). I don't plan on marriage, children, purchasing
real-estate in the near future. I would like to go back to school for
my masters or MBA in 4 to 5 years.
I have about 16k in federal student loans. 8k was previously
consolidated at ~2.75% and the other 8k is currently at ~4.8% and 6.8%
fixed (which I will probably consolidate). I also have another 8k in
private loans at a variable 7.65%. I'm currently beginning my 6 month
grace period for all of these loans.
I began investing in a Roth IRA account when I turned 18 and have
around 5k in it so far. Finally, NO credit card debt, car loans, etc.
That's me. Right now I'm thinking a good strategy would be to max my
401k up to at least my employer's contribution and also max out my
annual Roth IRA contribution (I think the limit is 2500?). I'm also
kind of thinking I should try and completely pay off the private loan
at 7.65% ASAP and begin chipping away at the other federal loans. Also
considering making only minimum payments on the 2.75% loan.
Any thoughts/comments/suggestions on this strategy? Finally, my
company's 401k plan is through Fidelity - what are your thoughts on
funds and risk categories? I've read a lot about index funds and
no-load mfs but am not sure which funds are available yet. Thanks a
lot for any help!!!
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Posted by BeachBum on January 18, 2007, 8:10 am
> Hello, I'm new here and am looking for some advice (snip)
>
>
> I began investing in a Roth IRA account when I turned 18 and have
> around 5k in it so far. Finally, NO credit card debt, car loans, etc.
>
> That's me. Right now I'm thinking a good strategy would be to max my
> 401k up to at least my employer's contribution and also max out my
> annual Roth IRA contribution (I think the limit is 2500?). I'm also
> kind of thinking I should try and completely pay off the private loan
> at 7.65% ASAP and begin chipping away at the other federal loans. Also
> considering making only minimum payments on the 2.75% loan.
>
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?
> Any thoughts/comments/suggestions on this strategy? Finally, my
> company's 401k plan is through Fidelity - what are your thoughts on
> funds and risk categories? I've read a lot about index funds and
> no-load mfs but am not sure which funds are available yet. Thanks a
> lot for any help!!!
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
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Posted by John A. Weeks III on January 18, 2007, 8:45 am
> I'm currently 21 and recently began a full-time job paying around 60k.
> My company matches 401k at 4% and has a decent stock purchase plan
> (quarterly buy-in at a 15% discount of lowest price of either first or
> last day of quarter). I don't plan on marriage, children, purchasing
> real-estate in the near future. I would like to go back to school for
> my masters or MBA in 4 to 5 years.
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
5 years in the future, this is short term money. You are
looking at money market funds and CD's. It is time to play
it safe since you don't have the time to wait for the stock
market to come back in the event it is down when you want to
go back to school.
-john-
--
======================================================================
John A. Weeks III 952-432-2708 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
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Posted by johnrichardson_us@yahoo.com on January 18, 2007, 11:33 am
> > real-estate in the near future. I would like to go back to school for
> > my masters or MBA in 4 to 5 years.
> and save as much money as you can. Since this event is 4 or
> 5 years in the future, this is short term money. You are
> looking at money market funds and CD's. It is time to play
If "teaks" is sure about going back to school, should savings be done
in a 529 plan (with conservative investments, of course)?
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Posted by kastnna on January 18, 2007, 11:49 am
> 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.
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).
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