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maybe someone can lend some advice.

Background: I'm 28, married, and expecting my first child.

Our short(ish)-term financial goal is to continue saving for a home.

I'm wondering if I should take some portion of the cash we've saved and purchase stocks, or possibly treasury bonds?

.. I'm pretty clueless when it comes to money.

UPDATE:

I'll be the only one working after the baby (assuming I continue in my present high(ish) paying job [not quite six figures]). We live in an a relatively expensive part of California, so an "entry-level" home for us will probably cost around $300,000.

Finally, our only consumer debts are ~$6,000 remaining on my car.

It really sounds like my best bet for now is to save for a home, and then worry about investing after that. (I'm also contributing to a Roth 401(k), with about %40 invested in precious metals).

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5  
40% in precious metals? I'd have to say that scares me more than just a bit... –  Eric Petroelje Apr 27 '12 at 20:04
2  
q) are you paying more than 3% on the car loan? a) if so, pay off all of it right away and earn a guaranteed return better than you could get from many non-guaranteed returns! (today's median intermediate-term corporate bond rate: 3.39%, treasury bond: 0.50%). Moreover, you won't even have to pay taxes on the money you save! –  fennec Apr 27 '12 at 22:55

9 Answers 9

up vote 9 down vote accepted

You're not clueless at all.

You don't mention that you have any debt, but if you have consumer debt, you might want to consider accelerating your payments on those debts unless you're already doing so.

You and your wife have a baby on the way. They're an absolute joy (we have a 7-year-old), but they're also a financial strain. If I were in your shoes knowing what I know about your situation, I'd think carefully and go slowly with any investing until after you adjust to a larger family. That way you run less risk of having a sizable investment tank when you really need the money for your new baby.

Continue to learn about investing. There's no reason to rush into something you're not comfortable with.

If your goal is for a down payment on a house, then continue towards that. Cash is just fine for that. Shop around for a good house from someone who really needs to sell.

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2  
Wow -- lucky me. When I asked this quesetion -- we had a life savings of $20,000. Now we've got almost the same amount -- after putting $30,000 down on our home (we move in next week!). It's been a good year for my consulting business. I really appreciated this post -- it had a big impact on the course we decided to set earlier this year. Thanks! –  Matt H. Jan 30 '13 at 2:56
    
That's excellent to hear! And thank you for the kind words. –  mbhunter Jan 30 '13 at 16:17

@mbhunter and @JoeTaxpayer have given good advice.

Were I in your situation, the only thing I might do differently is put whatever amount of cash not needed for emergencies in a money market fund with check-writing privileges and/or a debit card. The rate on the account has at least some chance of preserving the value of your principal, and it will be easier to put your money into investments as soon as you're ready. This sort of account is offered by any number of brokerages and financial companies, so pick one you trust and start there.

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I have questions for you -

  • Are you both working?
  • Does the Mrs plan to go back to work after brief maternity leave?
  • Do either of your companies offer a 401(k) with matching?
  • What is the price (give or take) of the house you'd want to buy? (even if you haven't shopped around yet, you must have a feel if it's looking like $250K/$400K/$600K)

As the others have stated, now really isn't the time to do anything to turn short term liquidity into long term investments. I'll contradict that only for matched 401(k) deposits. The answers to these questions will prompt more/better responses.

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As @mbhunter says, make sure you pay off any debt you have first. Then, it's a good idea to keep some or all of your savings as an emergency fund. If you use every last dime to pay for a house, you'll have no cushion available when something breaks down. The most common recommendation I've seen is to have 3-6 months worth of expenses as an emergency fund. Once you have that, then you can start saving for your down payment.

As @Victor says, try to find the best interest rate you can for that money, but I wouldn't invest it in any kind of stock or bond product, because your need for it is too short term. Safety is more important than growth given your time frame.

When you're ready to invest, make sure you learn all you can. You don't want to invest in something you don't understand, because that's how you get ripped off. You can be reading and talking to people while you're saving for your house so that, when the time comes, you'll have a pretty good idea of what you want to do for investments.

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Just my 2 cents, I read on the book, The WSJ Financial Guidebook for New Parents, that "the average family spends between $11k and $16k raising their child during his first year". So it might be better for you to make a budget including that cost, then decide how much money you feel safe to invest.

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We have an 8 month old, and I have just worked out that we would be spending about $2000 in the first year on her nappies and food (and that is because she is bottle fed). I would think that another $3000 to $4000 should cover things like clothing, cots, prams and other items in the first year (especially since you might be getting some things as presents anyway, eg. clothings and toys). $11k to $16k in the first year seems quite a lot, especially if you are trying to save. –  Victor Apr 28 '12 at 2:00
    
bought this on your recommendation - fantastic book! Thanks, @mcwolf! –  JHFB May 8 '12 at 14:53

This advice will be too specific, but...

With the non-retirement funds, start by paying off the car loan if it's more than ~3% interest rate. The remainder: looks like a good emergency fund. If you don't have one of those yet, you do now. Store it in the best interest-bearing savings account you can find (probably accessible by online banking). If you wish to grow your emergency fund beyond $14-20,000 you might also consider some bonds, to boost your returns and add a little risk (but not nearly as much risk as stocks).

With the Roth IRA - first of all, toss the precious metals. Precious metals are a crisis hedge and an advanced speculative instrument, not a beginner's investment strategy for 40% of the portfolio. You're either going to use this money for retirement, or your down payment fund. If it's retirement: you're 28; even with a kid on the way, you can afford to take risks in the retirement portfolio. Put it in either a targe-date fund or a series of index funds with an asset allocation suggested by an asset-allocation-suggestion calculator. You should probably have north of 80% stocks if it's money for retirement.

If you're starting a down-payment fund, or want to save for something similar, or if you want to treat the IRA money like it's a down-payment fund, either use one of these Vanguard LifeStrategy funds or something that's structured to do the same sort of thing.

I'm throwing Vanguard links at you because they have the funds with the low expense ratios. You can use Vanguard at your discretion if it's all an IRA (and not a 401(k)). Feel free to use an alternative, but watch the expense ratios lest they consume up to half your returns.

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My advice to you is not to take any advice from anyone when it comes to investing, especially when you don't know much about what you are investing in. mbhunter is correct, take your time to learn about what you want to invest in. If your goal at the moment is short term don't invest in stocks unless you really know what you are doing.

Put your money where you can get the highest interest rate, continue saving and do a lot of research on the house you wish to buy. Even if you are not ready to buy a house yet, start looking so that by the time you are ready to buy, you know how much the house is really worth. Before buying our house we spent about 7 months looking and researching and looked at more than 100 houses.

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Another thought: Higher education in the US is frightfully expensive with the sticker price for a 4-year undergraduate degree at a decent private college us sitting at around $250,000 and rising fast. Consider starting a 529 savings plan especially if you planning on more kids.

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I don't agree with others regarding paying off debt ASAP. You only have auto loan and auto loans are actually good for your credit score. With a mere $6k balance, it is not like you are going to have a problem paying off the loan. Not only that you will build your credit score and this will come in handy when you are purchasing a home.

With the Federal Reserve setting the interest rate at 0% until 2015, I can't understand why people would pay off anything ASAP. As long as you don't have revolving credit card balances, you are in the clear.

I don't know your salary nor how big your porfolio is but I would save 5 months expense in cash and dump the rest in precious metals. Holding cash is the worst thing you could be doing (unless you predict a deflation).

You said you already have 40% in precious metals. You are already way ahead of other 95% of Americans by protecting your purchasing power. Follow your gut. The stormg is coming and it's not going to get any better.

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-1 for "dump the rest in precious metals" == an undiversified and highly volatile position. –  Chris W. Rea Jan 30 '13 at 1:51
    
So...are you saying the economy is back to where it was pre-2008? USD is still mighty strong? Where would you put your cash into right now? If you think putting the rest of it in precious metals is highly volatile, you are probably one of those who didn't see the housing bubble coming. –  Debt is Slavery Jan 30 '13 at 2:01
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I certainly wouldn't put it all in one asset class. –  Chris W. Rea Jan 30 '13 at 2:02
    
Please name any asset where you could comfortably put your money into right now. Should he put more for 401k, buy US bonds, stocks, annuities? –  Debt is Slavery Jan 30 '13 at 2:10
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Oil isn't going out of fashion any time soon, nor is copper or steel. Unlike precious metals, the supply/demand curves for these are far more stable, plus the total market volumes are a lot bigger. –  MSalters Mar 11 '13 at 14:15

protected by Chris W. Rea Jan 30 '13 at 15:16

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