Am I saving too much?

Originally Posted by Wraisil

7% is what you should expect as an average over the lifetime of an investment account. Whether you choose an IRA (roth or traditional), 401k, or brokerage account investments is up to you. Some banks offer some or all of these services but they are not like opening a savings account and just watching it grow.

If you have access to an employer matching 401k or similar plan, that is generally the best place to start. If you do not, then an IRA through a brokerage is generally your best bet for most people, which brokerage is up to you to decide upon but I favor TDAmeritrade (helps that I have my account through thinkorswim first so I have a lower commission schedule than TDAmeritrade's original or new customers), though Fidelity and Schwab are also highly recommended.

The disadvantage of using "investment" accounts like 401k's or IRA's are the restrictions on withdrawing money. Some people are not comfortable with those and instead just invest in a regular brokerage account, whether professionally or personally managed. If you choose that route I would recommend professionally managed until you learn enough to manage it yourself. When using a professionally managed account, however, you must be careful about who you choose, what fees etc you will pay and all the fine details in the set-up.

dont u feel that ur 7% number is also contingent on a very diverse portfolio (bonds, stocks, commodities) possibly with hedges on some positions and very wise picks? i mean i feel that the general public only knows the big name companies and they likely invest in those, maybe some mutual funds...then come the black swan with bankruptcies and mergers of hundred year old companies, funds that turn out to be ponzi schemes and ur 7% is gone.

i guess i am not saying its a bad thing to be investing, just that with anything in life, increased expected return increases with risk, theres just no free lunch in this world. i dont have a solution either, but i am just more risk adverse then other ppl cuz money is just so hard to get and everyone else is trying to get their hands on urs.

I tend to think 7% is overly optimistic. I use 5% as my target growth to reach my retirement goals.

Originally Posted by flagman5

dont u feel that ur 7% number is also contingent on a very diverse portfolio (bonds, stocks, commodities) possibly with hedges on some positions and very wise picks? i mean i feel that the general public only knows the big name companies and they likely invest in those, maybe some mutual funds...then come the black swan with bankruptcies and mergers of hundred year old companies, funds that turn out to be ponzi schemes and ur 7% is gone.

i guess i am not saying its a bad thing to be investing, just that with anything in life, increased expected return increases with risk, theres just no free lunch in this world. i dont have a solution either, but i am just more risk adverse then other ppl cuz money is just so hard to get and everyone else is trying to get their hands on urs.

Of course 7% is contingent on a diverse portfolio. Historical return in the market over a long period of time with a diversified portfolio actually averages closer to 8%. My 7% is actually somewhat conservative based on history.

The people who decide to be stupid with their money and go buy a few companies stocks as their "investment" plan and never diversify or consult with financial planners won't see that because they are dumb and try to manage their money for life without the knowledge to do so safely. I put those people in the same category as someone who would do their own appendectomy with no medical training. Retirement investments are essentially life or death eventually and trying to manage it yourself with no training, education, or knowledge of what you are doing is a stupid thing for someone to do. Failing to invest for retirement, or doing it wrong, will result in either a very poor quality of life or depending on the generosity of others in later years.

Originally Posted by Wraisil

Your savings total right now is right about where it should be. The following is what I would do if I was in your situation.

I would take the total savings and put that in the higher interest savings (your emergency savings account) minus the total amount you want to put down on a home. I would then leave the "down payment" money in another account and contribute to your emergency savings at half the rate you do currently. When your emergency savings reaches 1 years take home pay I would reduce contributions there to about $50-100 per month to account for pay raises.

The other $700 I would split into $350 into a ROTH IRA and the other $350 into your TSP.

When you reach your "down payment" desired amount, assuming you haven't bought yet at that point, cut that in half again and max our your ROTH and TSP contributions to the legal limits. The left over at that point I would use to increase quality of life in whatever way you feel is best for you.

imo, you are saving enough, but you are not investing enough of that savings. The above plan is what I would do to immediately start investing more, reach your emergency savings level of comfort, and save for your home at the same time.

If you do buy a house, it may be more beneficial to take the money you were putting in the down-payment account and continue putting that away, but as extra payments on the home instead.

Excellent advice I need to definitely open up a separate ROTH IRA and start to contribute to that instead of the amount I currently have going into my savings. I can only contribute to my TSP for about 8 more years. I wish I could have more to show for in that aspect since I have been contributing since it's inception in the Navy. Looking at some recent statements, my total account hasn't moved since March, despite a monthly $605 deposit.

30 years.... LCDR?

No such thing as saving too much. You can diversify by buying ETFs such as SPY or QQQ which will outperform mutual funds over the long run (have lower expenses too). Once you have enough saved up, you might want to look at diversifying into rental properties.

While 7% may have been possible years ago, it's probably not realistic in the US any longer, unless you actively manage higher risk investments. Simple things like money markets, bonds and index funds haven't had returns like that in over a decade and it's unlikely they're going to bounce back in another 10 years