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what to do with extra cash?
Old 06-15-2008, 03:01 PM   #1
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what to do with extra cash?

Right now I'm increasing my TSP allowance +1% to +2% per month until I feel comfortable with it. Would it be alright to put some extra cash into a money market fund until I figure out what to do with it? Or is it safer to leave it in my ETrade savings account? I would prefer to put it into my TSP fund, but I can't do that with post-tax income
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Old 06-15-2008, 05:17 PM   #2
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Old 06-15-2008, 05:54 PM   #3
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I can't do that with post-tax income
Suggest you contribute to a Roth IRA, which uses post-tax contributions.

I'll let you Google the details on the Roth, but in your situation, it can make a lot of sense for the future.

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Old 06-15-2008, 06:56 PM   #4
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Would it be alright to put some extra cash into a money market fund until I figure out what to do with it?
You are asking a very wise Q there KN. I don't know how many folks that I hear about that make financial decisions based on...nothing but a hunch!

An axiom that I have always tried to follow is that one should never invest in anything that they do not fully understand. It is always better to make an informed decision after you have "figured it out".

Remember, the investment opportunity will always be there.
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Old 06-15-2008, 08:07 PM   #5
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Would it be alright to put some extra cash into a money market fund until I figure out what to do with it? Or is it safer to leave it in my ETrade savings account?
I'd put it in whichever has the highest interest rate until PenFed or NFCU have another screamin' good deal on CDs.

Actually you're asking a trick question. You're supposed to invest your spare cash into your desired long-range asset allocation, or whatever intermediate-term goal you're saving up for-- college tuition, a house down payment*, the next used car, or a honeymoon...

*Roth IRA contributions can be withdrawn anytime free of penalty, and a certain amount of a Roth's earnings can be withdrawn toward the purchase of a first home. Of course this sets back the Roth's ability to compound its earnings.
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Old 06-16-2008, 07:18 AM   #6
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I'd put it in whichever has the highest interest rate until PenFed or NFCU have another screamin' good deal on CDs.
NFCU has a 7year CD at 5.00%. Is that worth it? I'm having trouble understanding what is a good CD, and how much money I would need to put in to make it worth it.
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Old 06-16-2008, 10:21 PM   #7
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Keyboard - are you comfortable with the size of your emergency savings account? If not, just keep adding to that for a while. It shouldn't matter where your cash is going, as far as the savings or money market account - whichever has the highest interest rate should be good - because there should not be a penalty for withdrawing from either of those.
Keeping your money in a CD - especially a 7 year 5% CD, is almost like keeping your money in a high yield savings account. 5% is not shabby at all, but as young as you are, I'm thinking that you're not going to want to keep your money tied up in a CD. If you withdraw money early from a CD, there is a substantial penalty - you won't lost principal, but you will lose a sizable chunk of the interest. I'm also thinking that you are going to learn exponentially over the next year or so about saving and investing, and are going to look at that CD later, and want to have placed that money somewhere else.
Also - while 5% is not bad, you are not going to stay far ahead of inflation. If your main goal is safety though - 5% isn't too bad.
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Old 06-16-2008, 10:23 PM   #8
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Wow I just noticed I said
"5% is not shabby at all"
"5% is not bad"
"5% isn't too bad"
Can you tell I'm thinking he's looking at a decent interest rate?
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Old 06-17-2008, 10:46 PM   #9
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Wow I just noticed I said
"5% is not shabby at all"
"5% is not bad"
"5% isn't too bad"
Can you tell I'm thinking he's looking at a decent interest rate?
Last week NFCU matured our 10-month CD that was earning 6.25%. So a year ago, most of us wouldn't have clicked on a 5% seven-year CD.

A year from now, maybe we'll have the same attitude. Or maybe not.

PenFed seems to keep their sweet spot at about three years. I'm not sure that I'd want to go out further than that, especially when the Federal Reserve is trying to figure out how to fight inflation during a credit-crippled recession...

KN, you should decide whether you mind putting the money away for seven years and if you'd kick yourself when two years from now you see the same CDs at 6.5%. If you can live with both of those possible consequences then go ahead and buy the CD. There's no need to spend days agonizing over a point or two that adds up to less than a hundred bucks.

Another nice thing about PenFed is that they sell their CDs in increments of $1000. If you needed to break into a CD for emergency cash (and suffer the redemption penalties) then it's a lot less painful to do so $1000 at a time instead of in NFCU's $20K increments.
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