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Originally Posted by SteelBlue
Let me start off by admitting that I'm a very conservative investor. So, if you're not then you can disregard anything past this point. Here's how I would break down investing for the beginner. I'm sure plenty will disagree.
1) Emergency savings. Until you have this, I wouldn't bother with anything else (excepting #2) as the first emergency that comes up will wipe out your other savings anyway. People suggest different amounts of money for emergency savings. Enough to cover 6 months of bills seems to be the most standard answer.
2) 401K/403b. Take advantage of your workplace savings program ASAP. My personal belief is that until you have maxed out this option (currently I believe one is allowed to invest $15,000/yr pre-tax) there is no reason to move on to another option. I've seen a lot of guys try etrade accounts etc... before maxing out their retirement accounts. They are investing taxed dollars before they've exhausted their pre-tax potential. You will hear some argue that instead of maxing out the retirement option you should put in the exact amount that will earn you the employer match and then go to the traditional or Roth IRA. I can see their point, but in my case it makes more sense to max the 401k/403b.
3) IRA. I advocate this only after maxing your retirement account.
4) Personal investment accounts such as etrade etc.... Only after you've met the first 3 options does it make much sense to me to begin investing outside of them. Now you're spending dollars that have already been taxed. If you put this step before the others then you lose the opportunity to invest pre-tax dollars. The advantage of pre-tax investing being that you can grow that money for a long time before taxes come due. Some will argue that you get raped in the end on the taxes. This will depend on what tax bracket you are in when you retire.
Now, if your main goal right now is to save for a house and you weren't even talking about retirement savings yet then things change a bit. I'd build the emergency savings first, then begin a simple money market account for my home savings. The rate of return sucks right now, but I'm assuming that you want your house within the next 5 years or so. Investing in stocks in a shorter term than approx. 7 years is risky and it seems silly to me to take on a lot of risk in saving for a home.
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You sound like a Dave Ramsey fan to me -- you listen to him?
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Tobias: You know, Lindsay, as a therapist, I have advised a number of couples to explore an open relationship where the couple remains emotionally committed, but free to explore extra-marital encounters.
Lindsay: Well, did it work for those people?
Tobias: No, it never does. I mean, these people somehow delude themselves into thinking it might, but...but it might work for us.
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