Author Topic: What type of account? "Hobby Budget" ??  (Read 6212 times)

cbr shadow

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What type of account? "Hobby Budget" ??
« on: October 23, 2012, 10:19:11 AM »
During my non-mustachian days my wife and I would argue about how much money I would spend on my hobbies - the hobbies would always change, but the one constant was that I'd always want to spend money on them.  As a solution I proposed a "hobby budget".  Since we use Mint.com, we set it up where I would get $100 per month to do whatever I want with, and she couldn't give me a hard time about it.  Also if I went over that budget she would have every right to get upset.. so that made sense at the time and worked for the last year or so.
Another way that I would add to the hobby budget was to do side-jobs or buy/sell on craigslist for a profit.. we agreed that 30% of the funds from these things would go towards hobby budget, 70%. 

Anyways, now that I've become more financially responsible I dont really feel the need to spend tons of money on "hobbies" that are expensive and that I get bored with over time.  Instead, I would like to take the money that I have wrapped up in hobbies and invest it seperately from my 401k or Roth IRA.  I want a Vanguard account where I can constantly add small amounts of money to it, invest that into VTSMX, and have access to it if needed.  We have emergency funds, and this would be looked at as more of a long-term investment, but I'd like to know I can get access to it before 59.5 yrs old (I'm 28 right now).

When someone says they're investing, does that assume that it's through a 401k, IRA, or Roth IRA?  Is there a SMART place to put a small but consistant stream of money over time? I do realize that I could just cut off the hobby budget, put all of the side-job money into savings, and call it a day.. but that takes away a lot of fun/motivation/excitement.

Thoughts?

cthulhu

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Re: What type of account? "Hobby Budget" ??
« Reply #1 on: October 23, 2012, 10:26:33 AM »
I use ShareBuilder for my personal taxable stock investing needs.  They offer reasonable commissions based on the amount of investing you do and have plans for small regular investments.  This is where I am starting to create a position in Index Fund ETF's (vanguard of course) and will reinvest the dividends until I need them as an income stream.  There are other online brokerages like this that you can compare and contrast, but that's the type of brokerage I think you're looking for,

Al

Jamesqf

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Re: What type of account? "Hobby Budget" ??
« Reply #2 on: October 23, 2012, 11:30:43 AM »
When someone says they're investing, does that assume that it's through a 401k, IRA, or Roth IRA?  Is there a SMART place to put a small but consistant stream of money over time?

No, when I think of investing, I think of money outside of 410k/IRA.  Why not just open a personal mutual fund account?  They have the same funds you'd have in a 401k/IRA, but you can put money in and take it out at any time.

zoltani

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Re: What type of account? "Hobby Budget" ??
« Reply #3 on: October 23, 2012, 11:32:35 AM »
IDK cthulhu, I have a sharebuilder as well, but I also opened a vanguard account.  Why buy vanguard funds through sharebuilder when you can go directly to the source?  FYI, sharebuilder charges you a $19.95 commission on vanguard mutual funds plus fund expenses, while purchases through vanguard are commission free, you only pay the fund expenses. 

cbr shadow

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Re: What type of account? "Hobby Budget" ??
« Reply #4 on: October 23, 2012, 11:40:04 AM »
Sorry for such a newbie question, but what're the disadvantages of opening a mutual fund account?  Having quick access to the money has to come with some type of drawback, right?
I'm only interested in Vanguard because of the low fees and ease of use since I already have a Vanguard account.

zoltani

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Re: What type of account? "Hobby Budget" ??
« Reply #5 on: October 23, 2012, 11:43:20 AM »
Maybe i am confused, but if you have a vanguard account then you don't need to open a mutual fund account, you only need to buy the funds through your current vanguard account.

The money isn't necessarily quick access.  I mean, sure you can get it at any time, but whether you want to sell at that time or not depends on a few factors.  Tax implications, current price of your fund vs. your cost basis, etc. 

Maybe someone else can chime in here and give more details that I am missing?

cbr shadow

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Re: What type of account? "Hobby Budget" ??
« Reply #6 on: October 23, 2012, 11:57:15 AM »
I have a Vanguard account for my 401k through my employer, and for the Roth IRA that I'll be opening up tomorrow with $5,000 to start.  You're saying that through this same account I'm able to start a mutual fund, or just purchase stocks directly?

zoltani

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Re: What type of account? "Hobby Budget" ??
« Reply #7 on: October 23, 2012, 01:59:36 PM »
Sorry, i am not sure about that.

Jamesqf

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Re: What type of account? "Hobby Budget" ??
« Reply #8 on: October 23, 2012, 02:28:54 PM »
I have a Vanguard account for my 401k through my employer, and for the Roth IRA that I'll be opening up tomorrow with $5,000 to start.  You're saying that through this same account I'm able to start a mutual fund, or just purchase stocks directly?

Err...  No, you don't "start" a mutual fund.  You invest in one or more of the mutual funds that the company (Vanguard, Fidelity, T. Rowe Price, etc) runs.   For your 401K, you probably had a choice of several of these funds that you could put money in.  (For instance, my Vanguard 401k account has holdings in the International Growth and Windsor funds.)

So if you already have an account with the company (for IRA, etc) you can probably open a personal account too.  I keep non-401k money with T. Rowe Price, just to not have everything with the same company, and had a personal account before I started the IRA, but it should work the same way.  Just go to their web site, look for the open an account page, and you should be able to sign up in a few minutes.

Generally you don't purchase stocks directly with this kind of account (though some companies also have online brokerages).  They're for people like me who don't want to spend time & effort dealing with picking individual stocks.

Generally you should be able to get your money out at any time (though some have excess trading fees &c).  Usually takes about 3 days for a direct deposit to your bank account (my experience with TRP).  Some will even let you write checks on the account...

CB

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Re: What type of account? "Hobby Budget" ??
« Reply #9 on: October 23, 2012, 08:13:42 PM »
FYI, sharebuilder charges you a $19.95 commission on vanguard mutual funds plus fund expenses, while purchases through vanguard are commission free, you only pay the fund expenses.

I have never paid more than $4 commission on Vanguard funds purchased via my Sharebuilder account.  With their frequent promos I often pay $0 commissions. No minimum to invest and the ability to purchase fractional shares is nice, too.

zoltani

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Re: What type of account? "Hobby Budget" ??
« Reply #10 on: October 24, 2012, 10:27:58 AM »
Please tell me what I am doing wrong then.  When I got to trade--->mutual funds and type in VFIIX, for example, it says that there is a $19.95 commission, and the same fund minimums are there as vanguard has on their site ($3000 for initial purchase and $100 thereafter).  I do not see how you get around the minimums that vanguard has in place. Is it because you are doing it through automatic investing?

That said, even if you only pay $4 commission for purchasing vanguard funds with sharebuilder, it is still $4 more than purchasing directly through vanguard.


CB

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Re: What type of account? "Hobby Budget" ??
« Reply #11 on: October 24, 2012, 10:52:01 AM »
Yes, I never do anything but automatic investing as I am pretty sure I suck at timing the market. 

You're correct on the minimums and I was totally wrong; I checked and my previous sharebuilder Vanguard fund purchases were in chunks of $5,000 so I didn't run into the minimum.  All my smaller Vanguard holdings in sharebuilder are ETFs which aren't subject to the mutual fund restrictions.

For someone without an existing low-cost brokerage account who only wants to do index funds, direct from Vanguard looks to be the best.  Despite my market-timing suckage I enjoy dicking around (a little) so I like sharebuilder just fine.  It's also nicely integrated with ING Direct banking which I use heavily.

skyrefuge

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Re: What type of account? "Hobby Budget" ??
« Reply #12 on: October 24, 2012, 10:53:36 AM »
I think the word "account" is being used a couple of different ways here.

I have one "account" (call it a web account) with vanguard.com.  So just one username/password.

Then, within that "web account", I have access to multiple different "financial accounts", just like how you can have a checking account and savings account at the same bank.  "My portfolio" is divided into "Employer plans" and my personal accounts.  "Employer plans" includes my 401k and an old pension.  In my personal accounts, I have a Roth IRA, a rollover IRA, a SEP-IRA, and an "Individual account".

The "Individual account" is the one that you would create and use to invest in mutual funds that are not sheltered from taxes.  You should be able to open such an account by logging into your existing 401k web account; in fact, I believe it's done the same way as opening your Roth IRA account, they'll just ask you during the process if it's a retirement account (IRA) or a taxable ("general savings") account that you're opening.

The problem is that at least for mutual funds, while you can do automated regular purchases of relatively small amounts, you'll likely need a $3k initial investment to start.  I believe you can avoid those minimums with ETFs.

zoltani

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Re: What type of account? "Hobby Budget" ??
« Reply #13 on: October 24, 2012, 12:07:16 PM »
Despite my market-timing suckage I enjoy dicking around (a little) so I like sharebuilder just fine.  It's also nicely integrated with ING Direct banking which I use heavily.

I use sharebuilder for the same reasons, but I did open an account directly with vanguard as well. 

Jamesqf

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Re: What type of account? "Hobby Budget" ??
« Reply #14 on: October 24, 2012, 12:15:33 PM »
I think the word "account" is being used a couple of different ways here.

Yes.  You said what I was trying to say, but much more clearly expressed.

Quote
The problem is that at least for mutual funds, while you can do automated regular purchases of relatively small amounts, you'll likely need a $3k initial investment to start.  I believe you can avoid those minimums with ETFs.

With many funds, you'll also have an annual account fee if the amount in a particular fund is below a specified minimum.  (With my TRP funds, it's $20 if a fund balance is below $10K.)

madage

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Re: What type of account? "Hobby Budget" ??
« Reply #15 on: October 24, 2012, 12:38:44 PM »
Quote
With many funds, you'll also have an annual account fee if the amount in a particular fund is below a specified minimum.  (With my TRP funds, it's $20 if a fund balance is below $10K.)

Vanguard waives this fee as long as you sign up for electronic statements.
« Last Edit: October 29, 2012, 08:55:48 AM by madage »

grantmeaname

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Re: What type of account? "Hobby Budget" ??
« Reply #16 on: October 25, 2012, 01:48:46 PM »
Not to jump in on the thread and upend things after it's all said and done, but you should open a Roth IRA. You can take the money out anytime, no problem. Opening one with Vanguard is totally effortless. And when you're ready to retire, there are some real benefits to having an old Roth IRA rather than a new one. So I'd say it meets all your requirements, and it has (admittedly slight) benefits over a regular taxable vanguard account.

skyrefuge

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Re: What type of account? "Hobby Budget" ??
« Reply #17 on: October 25, 2012, 03:02:16 PM »
Not to jump in on the thread and upend things after it's all said and done, but you should open a Roth IRA.

Good advice, and even better there's no upending, as the OP mentioned halfway down that he was going to put $5k in a Roth IRA, and presumably this would be additional savings on top of that.  http://www.mrmoneymustache.com/forum/ask-a-mustachian/what-type-of-account-%27hobby-budget%27/msg32910/#msg32910 

grantmeaname

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Re: What type of account? "Hobby Budget" ??
« Reply #18 on: October 25, 2012, 03:39:43 PM »
Woops, missed that.