Author Topic: Investing noob needs help!  (Read 5036 times)

BAMxi

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Investing noob needs help!
« on: September 01, 2014, 12:04:01 PM »
Hello! So I'm pretty new around these parts, and would like some advice. My wife and I currently have about $27k stashed away in a savings account and I've been trying to get her to let me invest it in something that will at least gain some sort of interest. Her concern has always been liquidity, as we are wanting to use at least some of that money to put down on a house at some point in the next year or two. I explained the whole "needing to beat inflation or you're losing money" thing to her, and now she's come around to investing. The only problem is I'm not an investing guru, and don't want to screw this up...saving that money wasn't easy when all your friends are out partying and eating out all the time.

From reading a bunch of articles on here and elsewhere, I am pretty much sold on Vanguard, and from what I understand of their ETFs, those sound pretty solid. I rolled a 401k over into an etrade IRA a while back and purchased some of the Vanguard technology ETF with that, and it has performed well, however I am open to other investments, as well.

So, I'd like some help figuring out what to do from here, and would also appreciate your advice on any pitfalls I might be overlooking. I plan to open new Vanguard account and transfer over somewhere in the neighborhood of $24,000-ish (leaving some cash on hand for emergencies, etc). From there, I'm trying to decide if I should invest all of it in something fairly low risk, like short term bonds (VTI), or intermediate corp bonds (VCIT) in case we need to sell and pull some of the cash out for a house purchase, etc.

OR

Should I put a fraction of it into a low risk investment and do something more risky with the other part, like put half into something like what I mentioned above, and then the rest into the S&P 500 or the energy sector (or anything else....really not sure what to be looking at other than which ones are experiencing solid growth currently and since inception, and which are more risky than others, according to Vanguard's site?)

OR

do something else entirely and/or outside of ETFs/Vanguard?

Thanks in advance for your wisdom.

Another Reader

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Re: Investing noob needs help!
« Reply #1 on: September 01, 2014, 12:13:38 PM »
If you plan to use the money for a down payment on a house in the next two years, the money should be in a savings account.  Only money you will not need for several years should be in the market.

What about your retirement accounts?  Do you and your wife contribute to those?  401k's and IRA's should be in the stock market, but not short term money.  Vanguard is a good place to get that exposure for your IRA's.

Good for you for not spending your money on silly stuff.  In ten years, you will be way ahead of them.

GGNoob

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Re: Investing noob needs help!
« Reply #2 on: September 01, 2014, 12:22:36 PM »
I usually suggest Betterment when investing for a short term goal. Betterment provides you with the advice you need for the proper stock/bond allocation for your goal and time horizon.

However, you have a nice chunk of money already so you could take advantage of Vanguard Mutual Funds. Here's some suggestions...

Vanguard Lifestrategy Funds - Gives you a full 4-fund portfolio with the appropriate risk. Easiest if you don't want to maintain an allocation yourself.

Vanguard Tax-Exempt Muni-Bond Funds - These would be 100% bond funds and the dividends paid to you are not taxable. This would probably be the safest way to earn a return without putting the principal at much risk. Of course if interest rates go up, the value of these bonds may go down.
« Last Edit: September 01, 2014, 12:27:13 PM by Logan T »

BAMxi

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Re: Investing noob needs help!
« Reply #3 on: September 01, 2014, 12:47:15 PM »
If you plan to use the money for a down payment on a house in the next two years, the money should be in a savings account.  Only money you will not need for several years should be in the market.

What about your retirement accounts?  Do you and your wife contribute to those?  401k's and IRA's should be in the stock market, but not short term money.  Vanguard is a good place to get that exposure for your IRA's.

Good for you for not spending your money on silly stuff.  In ten years, you will be way ahead of them.

Thank you. And yes, a little background on us is that we are in our late 20s. I started my own business a couple years ago in which we are both currently working. However I might be looking at taking another job in the near future for a little while, and having my wife run the biz for a while. We're talking about having kids and buying a home, and I like the security of multiple streams of income during some of these bigger events. During the time we were both working full time, I was putting into my 401k and my employer matched my contributions 100%, and my wife got vested with the state, so she will qualify for a small pension from that no mater what (probably like $300 or so each month) once she's retirement age. We haven't really had any guidance other than me deciding I was going to figure this stuff out and started researching like crazy. As of late, with both of us being self employed, we haven't really put our money anywhere other than our savings account, but that's what I'm looking to change, especially if I do gain another stream of income for a while.

BAMxi

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Re: Investing noob needs help!
« Reply #4 on: September 01, 2014, 12:50:45 PM »
I usually suggest Betterment when investing for a short term goal. Betterment provides you with the advice you need for the proper stock/bond allocation for your goal and time horizon.

However, you have a nice chunk of money already so you could take advantage of Vanguard Mutual Funds. Here's some suggestions...

Vanguard Lifestrategy Funds - Gives you a full 4-fund portfolio with the appropriate risk. Easiest if you don't want to maintain an allocation yourself.

Vanguard Tax-Exempt Muni-Bond Funds - These would be 100% bond funds and the dividends paid to you are not taxable. This would probably be the safest way to earn a return without putting the principal at much risk. Of course if interest rates go up, the value of these bonds may go down.

Awesome, thank you. I hadn't really heard much about betterment, but their site looks nice. I was actually eyeing those Vanguard Lifestrategy Funds, but, as I'm pretty new to all of this, I wasn't clear if there were penalties for taking the money out quickly, minimum amounts that have to be kept in the account, etc. I'm sure that's all in the fine print that I can read more about, though. thank you again for your help.

TomTX

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Re: Investing noob needs help!
« Reply #5 on: September 01, 2014, 01:50:35 PM »
For your "house fund" you need not just the downpayment, transaction costs and moving costs saved, you also need a cash reserve for when things break in the house.

All of this should be in something like a high-yield savings account. Which are around 0.85% these days. Bleah. Look at bankrate.com

GGNoob

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Re: Investing noob needs help!
« Reply #6 on: September 01, 2014, 06:03:28 PM »
Just keep in mind that if you are investing this for a house, you'll want to be flexible on your time frame. If the markets go down, you may want to wait until they go back up so you don't have to take a loss.


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m^3mmm333

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Re: Investing noob needs help!
« Reply #7 on: September 01, 2014, 06:09:52 PM »
Hey BAMxi,

I'm going to try to teach you how to fish on this one...

Never mismatch the duration of your investments with your funding requirements. If you need a down-payment on your house in 2 years, then buy a security that matures in 2 years or less (CD or short term bonds). Remember, stocks are perpetual securities. Once you invest, the selling price isn't up to you, it's up to the market, which is a live auction (unless there is a contractual obligation to return your principal at a pre-destined bond, e.g., a bond), so you are at the whims of the market.

I hope that helps.

Another Reader

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Re: Investing noob needs help!
« Reply #8 on: September 01, 2014, 06:10:48 PM »
Which is exactly why the money should not be invested, it should be in savings.  You want to buy the house when you are ready to buy, not wait a couple of years after a protracted downturn.


BAMxi

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Re: Investing noob needs help!
« Reply #9 on: September 01, 2014, 06:47:50 PM »
Thank you all for the replies. After talking it over with the wife, we are going to keep the money in savings for now, and wait until I decide if I'm going to take another job or not. If so, I'll likely be looking at a very non-mustachian 40 minute commute (I'm pretty sure there's an article specifically about a 40 minute commute being "that bad"). So, if I do take that job and actually enjoy it, and decide to stay working there for a little while, then maybe we'll look to buy a house in that area of town, to cut down on the commute. So, that could be sooner than the "year or two" I initially anticipated, however I am in no hurry to jump into that.

Once we have a house bought, I'll likely start investing any extra cash with Vanguard, depending on the interest rate we're able to get on the mortgage. That is, if mortgage interest rates are still low enough to where I can get a higher rate of return investing in the market. If not, I guess I'll  just start throwing money at paying off the house.

Being an adult sucks.

thedayisbrave

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Re: Investing noob needs help!
« Reply #10 on: September 02, 2014, 10:01:19 AM »
Thank you all for the replies. After talking it over with the wife, we are going to keep the money in savings for now, and wait until I decide if I'm going to take another job or not. If so, I'll likely be looking at a very non-mustachian 40 minute commute (I'm pretty sure there's an article specifically about a 40 minute commute being "that bad"). So, if I do take that job and actually enjoy it, and decide to stay working there for a little while, then maybe we'll look to buy a house in that area of town, to cut down on the commute. So, that could be sooner than the "year or two" I initially anticipated, however I am in no hurry to jump into that.

Once we have a house bought, I'll likely start investing any extra cash with Vanguard, depending on the interest rate we're able to get on the mortgage. That is, if mortgage interest rates are still low enough to where I can get a higher rate of return investing in the market. If not, I guess I'll  just start throwing money at paying off the house.

Being an adult sucks.
Hey, don't be so down on yourself.  That plan looks A+ to me.  One step at a time :)

BAMxi

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Re: Investing noob needs help!
« Reply #11 on: September 02, 2014, 10:05:45 AM »
Thank you all for the replies. After talking it over with the wife, we are going to keep the money in savings for now, and wait until I decide if I'm going to take another job or not. If so, I'll likely be looking at a very non-mustachian 40 minute commute (I'm pretty sure there's an article specifically about a 40 minute commute being "that bad"). So, if I do take that job and actually enjoy it, and decide to stay working there for a little while, then maybe we'll look to buy a house in that area of town, to cut down on the commute. So, that could be sooner than the "year or two" I initially anticipated, however I am in no hurry to jump into that.

Once we have a house bought, I'll likely start investing any extra cash with Vanguard, depending on the interest rate we're able to get on the mortgage. That is, if mortgage interest rates are still low enough to where I can get a higher rate of return investing in the market. If not, I guess I'll  just start throwing money at paying off the house.

Being an adult sucks.
Hey, don't be so down on yourself.  That plan looks A+ to me.  One step at a time :)

haha thanks. I was mostly kidding about it sucking to be an adult. I do always have to remind myself that some things take time...I've always been one with very high goals and very little patience. Sometimes it has paid off, but other times, it's just annoying.

thedayisbrave

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Re: Investing noob needs help!
« Reply #12 on: September 02, 2014, 10:25:40 AM »

haha thanks. I was mostly kidding about it sucking to be an adult. I do always have to remind myself that some things take time...I've always been one with very high goals and very little patience. Sometimes it has paid off, but other times, it's just annoying.
I'm the exact same way.  When there's nothing left for me to do, I plan the shit out of stuff... like where my money is going in 2016.  I mean, a lot can happen in two years and I know it... but I still plan.  I have to.  I routinely have sessions where I will lay down all my plans in front of my mom (aka my financial/business advisor) and she's like great... but calm down! Haha.

BAMxi

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Re: Investing noob needs help!
« Reply #13 on: September 02, 2014, 10:32:00 AM »

I'm the exact same way.  When there's nothing left for me to do, I plan the shit out of stuff... like where my money is going in 2016.  I mean, a lot can happen in two years and I know it... but I still plan.  I have to.  I routinely have sessions where I will lay down all my plans in front of my mom (aka my financial/business advisor) and she's like great... but calm down! Haha.

haha I'm the exact same way! I have plans for things that are so far in advance...it's ridiculous!! My unborn children's college graduation party will be fantastic! just kidding....I'm not quite that bad....yet. But with regards to house things, on the few occasions I've looked at houses for sale in the area, I start mentally renovating the ones I like as if I've already bought the place and paid it off, and am settling in for retirement! haha

thedayisbrave

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Re: Investing noob needs help!
« Reply #14 on: September 02, 2014, 10:59:04 AM »

haha I'm the exact same way! I have plans for things that are so far in advance...it's ridiculous!! My unborn children's college graduation party will be fantastic! just kidding....I'm not quite that bad....yet. But with regards to house things, on the few occasions I've looked at houses for sale in the area, I start mentally renovating the ones I like as if I've already bought the place and paid it off, and am settling in for retirement! haha
;) I think it's the sign of a healthy & motivated mind!