Author Topic: Investment Advice For The 20-something Just Starting Out?  (Read 2688 times)

Penn42

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Investment Advice For The 20-something Just Starting Out?
« on: October 22, 2017, 12:02:45 PM »
Found this website a month or two ago and it has really motivated me because I have always enjoyed budgeting but I didn't really know any path forward for useful ways to make my money work for me.  So now that I know that it's not only possible, but actually somewhat straightforward, I am energized and ready to get my stash growing.  That said, I still have quite a few questions.  Hence this thread.

Here's some relevant info: I'm 26 years old and only a couple months away from paying off my student loans.  I hit my loans hard right out of the gate because I didn't want to pay on them forever and that payment is currently my largest monthly expense.  My plan is to take all the money I'm throwing at them every month and start investing it.  I already have a small stash started in the form of an IRA.  I started it a couple years ago to simply get my foot in the door with the whole investing thing.  Been doing 4% Roth/4% traditional.  I also have a 401(k) option through my employer; however, there is no match or Roth option and I haven't started contributing anything to that. 

My ultimate goal is FI (we'll see if the RE is something I want once I reach it).  Once my loans are done I should be able to hit a 50% savings rate pretty easy. With a couple guaranteed raises coming down the pike and some serious thought about all my waste I know I'll be able to improve on that. 

And now the questions:

Should I be worried about maxing out my IRA or 401(k) before I start investing in index funds?

If not, what should I be looking for in vanguards list of funds?  Are there specific funds or attributes of funds I should be paying attention to. Is there a good basic catch all fund that would be good to start with? 

Say you're invested heavily in index funds and there's a large financial crisis again, what's the best course of action?  If you have time do you just ride it out knowing the market will come back eventually, do you do that? Or is it a good idea to get it out to save as much capital as possible and reinvest once things hit bottom? 

Many thanks,

Penn42






Zamboni

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #1 on: October 22, 2017, 02:21:24 PM »
Here is some excellent advice for someone your age . . . you can just scroll down to the bullet points which are bolded if you don't want to read his whole preamble ramble:

http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/

Ride out any market dips at your age. Don't try to time it . . . that is how you sell low and buy high. Another excellent resource is a book called Millionaire Teacher.

Good luck!

MDM

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #2 on: October 22, 2017, 02:47:26 PM »
See also Investment Order for a variety of suggestions that may be applicable.

nereo

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #3 on: October 22, 2017, 03:17:21 PM »
Already good links provided with JL Collins & the Investment order.  Read those and understand them. 
I'll address these points:
Quote
Should I be worried about maxing out my IRA or 401(k) before I start investing in index funds?
...
Say you're invested heavily in index funds and there's a large financial crisis again, what's the best course of action?  If you have time do you just ride it out knowing the market will come back eventually, do you do that? Or is it a good idea to get it out to save as much capital as possible and reinvest once things hit bottom?

First, I think you are a bit confused about the what an IRA/401(k) is, and what index funds are.  IRAs and 401(k)s are two types of tax-advantaged accounts.  Think of them as "buckets" you can put your money into.  What you fill those buckets with is up to you and (in the case of the 401(k)) your employer.  With an IRA you get to choose what's in it.  It can be individaul stocks, bonds, REITs, and yes, index funds.  Most people around here hold index funds in all their accounts, and for good reason.
401(k)s are a bit more complicated because your investment options are more limited by whatever plan your employer has signed up for.  Very often though there are index funds offered there too.  Pay special attention to the cost of each plan, called the "expense ratio".  That's how much you will pay each year to hold the fund, as a percentage of ytour total assets.  For index funds you want something <0.2%; often it's <0.1%.

Index funds are passive funds that track a particular market sector.  They are passive because there is no fund manager choosing which companies he thinks will do well and buying those. There are literally hundreds of index funds out there covering every angle of the market imaginable, but the most important around here are index funds that mirror the SP500 and the total stock market.  Reading JL Collins will help, too.  If you have more questions just ask.

Finally: what to do when the market next tanks. This is importabnt, because it gets to the heart of investing and your risk tolerance.  The correct thing to do when the market tanks is to not sell.  People lose money when they panic and pull out.  The smartest economists cannot detect when the market has "bottomed out" and they are comically bad at predicting when the next market collapse will come.  You and I, as ordinary people, stand even less chance.  So the most surefire strategy is simply to buy and hold and stop worrying about spikes and drops.

If you are investing constantly (e.g. every paycheck) you will buy more shares whenever the market drops and you'll buy less shares when the market spikes.  Over time it will all average out.

hope that helps

~n~
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Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #4 on: October 22, 2017, 04:19:27 PM »
Thanks for the replies guys!  The Collins and Investment Order links are going to be very helpful, I've read both now but have lots of work to do falling down the rabbit hole of secondary links!  It sounds like the VTSAX is where I should start.  That's really one of the biggest reasons I started this thread is I knew I could sit here and never start investing if I didn't find a place to start. 

Already good links provided with JL Collins & the Investment order.  Read those and understand them. 
I'll address these points:
Quote
Should I be worried about maxing out my IRA or 401(k) before I start investing in index funds?
...
Say you're invested heavily in index funds and there's a large financial crisis again, what's the best course of action?  If you have time do you just ride it out knowing the market will come back eventually, do you do that? Or is it a good idea to get it out to save as much capital as possible and reinvest once things hit bottom?

First, I think you are a bit confused about the what an IRA/401(k) is, and what index funds are.

Yes, haha.  I have been slowly wrapping my brain around it all and now that you say it I do remember learning that many of the same investment options fall under both the IRA/401(k) umbrellas.  Those designations really have more to do with how the money is treated by the gov't than anything else, right?  The question I was trying to get at but didn't actually type was should I be too worried about either IRA's or 401(k)'s before heading straight to Vanguard?  I'll be able to retire far earlier than 59 1/2.  Would I just be wasting money and prolonging financial independence?

Zamboni

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #5 on: October 22, 2017, 04:36:38 PM »
Without your income it's hard to advise, but most earners at your age would do well to max your Roth, and then figure out if you will contribute to the 401k or traditional IRA (depends upon the 401K investment options if there is no employer match.) The 401K or traditional IRA contributions will decrease the amount of taxes you have to pay this year since those are pre-tax income. Good luck!

Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #6 on: October 22, 2017, 05:04:03 PM »
Without your income it's hard to advise, but most earners at your age would do well to max your Roth, and then figure out if you will contribute to the 401k or traditional IRA (depends upon the 401K investment options if there is no employer match.) The 401K or traditional IRA contributions will decrease the amount of taxes you have to pay this year since those are pre-tax income. Good luck!

I'll have to look into what options are offered and probably get back in this thread after I don't understand most of it!  My income is currently 55% what it will be in another 48 months.  Incremental increases throughout the apprenticeship.  I'm already living comfortably now and I have no plans to inflate my lifestyle with the raises.  All that 45% will be heading straight to investments with some a nice chunk on top because my loan payment will be headed there as well. 

nereo

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #7 on: October 22, 2017, 05:53:02 PM »
A few more things...
Be aware that there are several different ways of accessing tax advantaged accounts (e.g. IRAs, 401(k)s) penalty free before 59.5
I'll link a good thread on that in a minute

Second, Vanguard is one of many brokerages.  Others include Fidelity, Schwabb, Scottrade, etc.  They are the brokers through whom you invest.  Think of them as a grocery store; all will offer basically the same items with some slight differences in pricing and quality (e.g. service).  When you open an IRA you will chose a brokerage to buy a particular fund/stock/bond/REIT from.  For example, you could choose Vanguard and buy their SP500 index fund (VFINX).  Your 401(k) works the same way, only your employer will have chosen the brokerage for you.  Note that when you change jobs or retire you can 'roll-over' the funds from your 401(k) into your brokerage (often into your IRA).
Also - you can have BOTH taxable accounts and tax-advantaged accounts with the same brokerage.  You can (if you really wanted to), spread your investments over multiple brokerages.  The only time that is a good idea is when you have >>$500k and you want to make sure that the FDIC (federal insurance priotecting investments should hte bank go belly up) covers all of your investments.
You aren't there yet, so don't worry about that.

Finally, to address your question, yes the overwhelming reason to invest in IRA and 401(k) (and HSA) accounts is that you will pay substantially less in taxes.  Over a few decades it can result in having tens-of-thousands of dollars more (potentially hundreds-of-thousands more) vs investing the exact same amount in taxable accounts.

When you are nearing retirement there are other strategies for reducing your post-retirement taxable burden (i.e. the amount you pay in taxes each year).  But that's way down the line. For right now, follow MDM's investment order, make sure you are optimizing your spending ("don't waste money") and you'll be on the fast track towards fianncial independence (FI). 

ETA:  Here's the link describing how to access tax-advantaged accounts before age 59.5 penalty free. (link here)
Right now its not super important that you understand all of it - but just be aware that options exist, and so you should shoot to max out your IRA and 401(k) and HSA every year (whenever possible).
« Last Edit: October 22, 2017, 05:54:53 PM by nereo »
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talltexan

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #8 on: October 23, 2017, 09:19:44 AM »
A few more things...
Be aware that there are several different ways of accessing tax advantaged accounts (e.g. IRAs, 401(k)s) penalty free before 59.5
I'll link a good thread on that in a minute

Second, Vanguard is one of many brokerages.  Others include Fidelity, Schwabb, Scottrade, etc.  They are the brokers through whom you invest.  Think of them as a grocery store; all will offer basically the same items with some slight differences in pricing and quality (e.g. service).  When you open an IRA you will chose a brokerage to buy a particular fund/stock/bond/REIT from.  For example, you could choose Vanguard and buy their SP500 index fund (VFINX).  Your 401(k) works the same way, only your employer will have chosen the brokerage for you.  Note that when you change jobs or retire you can 'roll-over' the funds from your 401(k) into your brokerage (often into your IRA).
Also - you can have BOTH taxable accounts and tax-advantaged accounts with the same brokerage.  You can (if you really wanted to), spread your investments over multiple brokerages.  The only time that is a good idea is when you have >>$500k and you want to make sure that the FDIC (federal insurance priotecting investments should hte bank go belly up) covers all of your investments.
You aren't there yet, so don't worry about that.

Finally, to address your question, yes the overwhelming reason to invest in IRA and 401(k) (and HSA) accounts is that you will pay substantially less in taxes.  Over a few decades it can result in having tens-of-thousands of dollars more (potentially hundreds-of-thousands more) vs investing the exact same amount in taxable accounts.

When you are nearing retirement there are other strategies for reducing your post-retirement taxable burden (i.e. the amount you pay in taxes each year).  But that's way down the line. For right now, follow MDM's investment order, make sure you are optimizing your spending ("don't waste money") and you'll be on the fast track towards fianncial independence (FI). 

ETA:  Here's the link describing how to access tax-advantaged accounts before age 59.5 penalty free. (link here)
Right now its not super important that you understand all of it - but just be aware that options exist, and so you should shoot to max out your IRA and 401(k) and HSA every year (whenever possible).

Most of what NEREO says is fine, but the part about the FDIC doesn't sound correct. The FDIC insures checking account, savings account, and CD deposits. They do not insure risky investments such as the type you should be owning in an IRA.

You may have good reasons for spreading your investments across several providers, but this consideration shouldn't be one because--at your young age--you simply shouldn't have $250,000 in these types of low-risk instruments. Get it into VTSAX, ASAP!

Tyler

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #9 on: October 23, 2017, 09:38:36 AM »
Also - you can have BOTH taxable accounts and tax-advantaged accounts with the same brokerage.  You can (if you really wanted to), spread your investments over multiple brokerages.  The only time that is a good idea is when you have >>$500k and you want to make sure that the FDIC (federal insurance priotecting investments should hte bank go belly up) covers all of your investments.
You aren't there yet, so don't worry about that.

Most of what NEREO says is fine, but the part about the FDIC doesn't sound correct. The FDIC insures checking account, savings account, and CD deposits. They do not insure risky investments such as the type you should be owning in an IRA.

True.  But I'll give Nereo the benefit of the doubt and assume he meant to say SIPC.  ;)
« Last Edit: October 23, 2017, 01:00:11 PM by Tyler »
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Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #10 on: October 23, 2017, 10:54:31 AM »
Have been looking at the order of investments post and here's where I'm at.

- once my student loans are done I will have no debt of any kind

- I don't think I qualify for an hsa.  My deductible is only $250.  However I'm on a self funded plan and pay 20% across the board for medical costs, not sure if that changes things.

- there is no match on the 401(k) so I don't need to take that into consideration. I haven't looked at all the fund (is that the right word?) options offered yet, but the broker for the 401(k) at my disposal is John Hancock.

- my IRA is currently through TIAA.  At my previous employer i started a 403(b) there and just rolled it into an IRA when I left because of ease.  Comparing expense ratios with Vanguard it looks like Vanguard's are better.  There isn't quite the 10k minimum required for VTSAX, but I'll probably change brokers for my IRA and just switch funds to VTSAX once I hit 10k (which will happen really quick once my loans are done).

MDM

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #11 on: October 23, 2017, 11:12:16 AM »
- I don't think I qualify for an hsa.  My deductible is only $250.
You think correctly.

Quote
- there is no match on the 401(k) so I don't need to take that into consideration. I haven't looked at all the fund (is that the right word?) options offered yet, but the broker for the 401(k) at my disposal is John Hancock.
Ouch (probably) - JH is notorious for poor (i.e., expensive) fund choices.  To 401k or not to 401k? That is the question. might be worth reading.

Quote
- my IRA is currently through TIAA.  At my previous employer i started a 403(b) there and just rolled it into an IRA when I left because of ease.  Comparing expense ratios with Vanguard it looks like Vanguard's are better.  There isn't quite the 10k minimum required for VTSAX, but I'll probably change brokers for my IRA and just switch funds to VTSAX once I hit 10k (which will happen really quick once my loans are done).
Good plan!

nereo

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #12 on: October 23, 2017, 02:01:08 PM »
Also - you can have BOTH taxable accounts and tax-advantaged accounts with the same brokerage.  You can (if you really wanted to), spread your investments over multiple brokerages.  The only time that is a good idea is when you have >>$500k and you want to make sure that the FDIC (federal insurance priotecting investments should hte bank go belly up) covers all of your investments.
You aren't there yet, so don't worry about that.

Most of what NEREO says is fine, but the part about the FDIC doesn't sound correct. The FDIC insures checking account, savings account, and CD deposits. They do not insure risky investments such as the type you should be owning in an IRA.

True.  But I'll give Nereo the benefit of the doubt and assume he meant to say SIPC.  ;)

Yes, thank you guys for catching that misstep.  SIPC but also people with a great deal of wealth the cash-equivalent accounts held with your broker/bank.  As stated its not something the OP needs to worry about in this phase, nor most of us, ever.  It occasionally comes up with individuals who have/are buying selling properties and therefor sitting on >>$500k.

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nereo

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #13 on: October 23, 2017, 02:05:48 PM »
- my IRA is currently through TIAA.  At my previous employer i started a 403(b) there and just rolled it into an IRA when I left because of ease.  Comparing expense ratios with Vanguard it looks like Vanguard's are better.  There isn't quite the 10k minimum required for VTSAX, but I'll probably change brokers for my IRA and just switch funds to VTSAX once I hit 10k (which will happen really quick once my loans are done).

Just to be clear, VTSAX is Vanguard's "admiral class" total market index fund.  The "admiral class" under Vanguard has a higher minimum investment and a lower expense ratio.  Many of their funds have "admiral classes" 
But, you can buy the same fund from Vanguard under their "investor class" for $3,000 for a slightly higher expense ratio (0.15% vs 0.04%).  Once you have $10,000 in that fund you can ask and Vanguard will switch you automatically to "admiral class" shares.  This is a non-taxable event and there is no fee.

In other words, don't let the $10k minimum prevent you from opening an account.  Most of Vanguards accounts have $3k minimum options.
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Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #14 on: October 24, 2017, 08:51:11 PM »
Thanks for all the replies everyone!  Was on the phone for two hours this afternoon but the ball is rolling and my portfolio is on its way to vanguard.   

Half my portfolio is traditional and half Roth.  I think for now I'm going to keep it that way and not do a Roth conversion.  I found a couple deep threads on the topic but honestly wading through them was a little too much at the moment.

Another thing I'm going to do is... I've got some bonds my grandparents bought for me when I was born.   They're not matured yet.  Some are in the 1.xx% range and all the rest are 4% with a grand total of $3500 between them all.  I'm going to pull those out and get that money working harder for me.  Something I'm wondering is whether I should throw that money into my IRA or open up a personal investment account with Vanguard as well.   

You wouldn't want to have your investments across too many accounts else you lose the power of compounding, right?  I understand right now with these small sums it doesn't much matter, but I'm not sure how many baskets is appropriate.

MDM

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #15 on: October 24, 2017, 09:01:33 PM »
You wouldn't want to have your investments across too many accounts else you lose the power of compounding, right?
Compounding works the same no matter how many accounts you have.  Do some back of the envelope calculations - or algebra ;) - to confirm.

Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #16 on: October 24, 2017, 09:38:11 PM »
You wouldn't want to have your investments across too many accounts else you lose the power of compounding, right?
Compounding works the same no matter how many accounts you have.  Do some back of the envelope calculations - or algebra ;) - to confirm.

I've been thinking about that.  10 accounts with $100 returning 1% is the same as 1 account with $1000 returning 1%, but I'm still kinda buying into the whole investing is hard and tricky dogma so I wasn't sure if there was some other fancy consideration I wasn't taking into account.   Good to know it's as simple as it is.

MDM

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #17 on: October 24, 2017, 10:43:30 PM »
I've been thinking about that.  10 accounts with $100 returning 1% is the same as 1 account with $1000 returning 1%, but I'm still kinda buying into the whole investing is hard and tricky dogma so I wasn't sure if there was some other fancy consideration I wasn't taking into account.   Good to know it's as simple as it is.
Yes, you are correct.

Speaking of "it doesn't have to be complicated," you might also enjoy The Financial Advisor | Dilbert by Scott Adams.

nereo

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #18 on: October 25, 2017, 03:07:08 PM »
You wouldn't want to have your investments across too many accounts else you lose the power of compounding, right?
Compounding works the same no matter how many accounts you have.  Do some back of the envelope calculations - or algebra ;) - to confirm.

I've been thinking about that.  10 accounts with $100 returning 1% is the same as 1 account with $1000 returning 1%, but I'm still kinda buying into the whole investing is hard and tricky dogma so I wasn't sure if there was some other fancy consideration I wasn't taking into account.   Good to know it's as simple as it is.

Just re-affirming that personal investing can be dirt simple.  Remember that the entire financial industry has a vested interest in convincing people that wealth management is too hard and complicated for the average person --- don't buy the hype.
Spend less than you earn, fund your tax-advantaged accounts each year and invest in low-cost, broad-market index funds.
Do that and you'll be fine. Ask questions when necessary.
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Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #19 on: November 01, 2017, 05:27:20 PM »
Update time.  Vanguard accounts are opened and the checks are in the mail from TIAA.  My parents conveniently decided to come visit next weekend so I asked them to bring those bonds with them.  Question about those.  Will I be able to put that money into my Vanguard IRA?  It isn't earned income to will it qualify?

I just had the enrollment form sent to me for the 401(k) so I can enroll so I can see my investment options.  I called John Hancock and they could tell me what types of options were available, but nothing specific like ER or other fees until I was actually in the system I guess.  So that ball is rolling.

Now it's time to start looking more critically at my taxes and figure all that out.  Will probably make a sister thread to this one in that forum so I can get my head wrapped around all that business.

MDM

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #20 on: November 01, 2017, 05:36:31 PM »
Update time.  Vanguard accounts are opened and the checks are in the mail from TIAA.  My parents conveniently decided to come visit next weekend so I asked them to bring those bonds with them.  Question about those.  Will I be able to put that money into my Vanguard IRA?  It isn't earned income to will it qualify?
Doesn't matter whether you cash in the bonds to buy food while directing your paycheck to the IRA, or use paycheck money to buy food while cashing in the bonds to put money in the IRA.  One merely needs to have earned income in an amount greater than or equal to the IRA contribution.

CanuckExpat

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #21 on: November 01, 2017, 08:11:00 PM »
Just posted this somewhere else (from Wade Pfau AMA on reddit):

"
-Focus on Financial independence. You may or may not want to retire when the time comes, but with financial independence you will have the freedom to do what you want.

-Make sure you have a plan for how you will spend your time. Wanting to be retired is more important then just not wanting to work. You've got to do something.

-Nothing beats the old: save early and often. The needed savings rate doubles for each 10 years you wait to get started.
"
Retired, or just homeless and jobless.
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Heckler

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« Last Edit: November 02, 2017, 04:16:34 AM by Heckler »

Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #23 on: November 18, 2017, 11:38:47 AM »
Getting info on the 401(k) has turned out to be far harder than I anticipated.  The plan is through my union and nobody there or at my employer seems to have a packet or really any info whatsoever on the investment options available in the plan.  The best answer I can get is that I need to start contributing so that John Hancock will contact me about setting up my online account so I can log on to their website and see for myself. 

Seems weird to me.  Is that normal or is everyone I'm talking to not being helpful? 

I even tried calling John Hancock directly and got the same result.  Have to have an account first.  Aren't the options available under any given plan the same for all participants?  Why would it matter if I've got money in the bucket or not?  In all likelihood I'm gonna start contributing anyway, but I'd still like to poke my head in and have a whiff, ya know?

--

Also, this is likely a question that might be specific to the plan provider, but far in the future when I'm FI and I have made the division to retire I'll still be a member of the union.  Will that affect whether or not I'll be able to roll the plan over to somewhere else should I want to? 

--

And what are people's thoughts on FU fund amounts?  I've got an emergency fund that I contribute to every month and let grow, but it's not big enough yet for my liking.  However, I'm not sure how big I should let it get too.  I've heard 6 months of expenses thrown around before.  Is that 6-months of bare minimum expenses?  Or is that 6 months of expenses including your current investment rate too?  I'm close to six months or bare expenses.   I'd like to have a cushion in there for an emergency too, though.  I'm nowhere close to 6 months of expenses including the savings rate I've projected for myself once I'm debt free.


kasperle

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #24 on: November 18, 2017, 12:02:37 PM »
That is weird that you can't find information on the funds available through the 401(k) plan. But if you can't figure it out, then maybe you can find out if you're able to change your contribution at any time throughout the year. If you can, then you could contribute some small amount in there ($100 or whatever) to open the account to see the funds. From there, you could decide to continue or to stop contributing. This post may help you make that decision.

And what are people's thoughts on FU fund amounts?  I've got an emergency fund that I contribute to every month and let grow, but it's not big enough yet for my liking.  However, I'm not sure how big I should let it get too.  I've heard 6 months of expenses thrown around before.  Is that 6-months of bare minimum expenses?  Or is that 6 months of expenses including your current investment rate too?  I'm close to six months or bare expenses.   I'd like to have a cushion in there for an emergency too, though.  I'm nowhere close to 6 months of expenses including the savings rate I've projected for myself once I'm debt free.

This depends on you, I think. What would realistically happen if you lost your job? Do you have family that would help you out? It sounds like you might be someone who wants some additional security, which is alright. I know someone who is self-employed who has a year of expenses in an emergency fund. This is what she needs to feel secure, and that's working out for her. Other people may have no emergency fund, or 1 month, or 6 months.

My current emergency fund isn't very structured; it's just an assortment of things that make me feel secure enough. For expense emergencies that I can't afford in cash the moment I need to pay them, I have a credit card with a high limit. The idea is that I could use my stock/bond investments to pay off the credit card before accruing any interest. Other than that, I keep around $5k-10k in a bank account, although sometimes I let that go as low as $2k.

Quote
Is that 6-months of bare minimum expenses?  Or is that 6 months of expenses including your current investment rate too?

In a situation where you're pulling from your emergency fund, you probably wouldn't be worrying as much about investing. I'd just stash away whatever money you need to feel secure ignoring your current investment rate.

TomTX

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #25 on: November 18, 2017, 08:04:21 PM »
Thanks for the replies guys!  The Collins and Investment Order links are going to be very helpful, I've read both now but have lots of work to do falling down the rabbit hole of secondary links!  It sounds like the VTSAX is where I should start.  That's really one of the biggest reasons I started this thread is I knew I could sit here and never start investing if I didn't find a place to start. 

My advice to a new investor is to just dump everything into VTSAX (or VTI) while you figure stuff out. There is no need (and some disadvantages) to diversifying beyond that til you have at least $50k total. Heck, I think it's perfectly fine to stick with 100% VTSAX (or VTI) up to at least $250k during the accumulation phase.

Spend the time learning, but remember that the motive of virtually all paid "financial guys" is to suck as much money as possible out of your pocket. For financial "news" they just want as many clicks/subscriptions as possible.

The correct answers for investing (do very little, invest in low cost index funds) don't really change much. Thus, no reason to publish a new month of Barron's or Money or whatever. So they try to keep it exciting, and not to your benefit.
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PDXTabs

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #26 on: November 19, 2017, 10:00:01 AM »
In addition to the information that has already been posted, I would recommend reading The Simple Path to Wealth by J L Collins. My local library had a copy, but I liked it so much that I plan to buy a copy for my daughter when she starts working.

Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #27 on: November 19, 2017, 10:55:11 AM »
I have been reading the stock series over at jlcollins and had found the post about whether or not to use your 401(k).  Seems after consulting the Mad Fientest he begrudgingly agrees that it might be the better option even if it is laden with fees.  For now I guess I'm gonna have to contribute a little and see what's up with mine. 

Does his book cover substantially different material than his blog?  Is it worth getting separate from the blog?

PDXTabs

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #28 on: November 20, 2017, 08:50:03 AM »
Does his book cover substantially different material than his blog?  Is it worth getting separate from the blog?

I haven't read his blog. The book is a very accessible introduction to investing with everything the average US resident needs to know. It is laid out very well with chapters towards the end dedicated to actually retiring and even philanthropy. If you have read his blog and poked around MMM and Mad Fientist you probably wouldn't learn anything new of immediate value.

Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #29 on: December 01, 2017, 05:52:22 PM »
With the money from the bonds I paid off the my student loans!  I used what was left to max out my IRA for this year.

The way I had my budgeting spreadsheet set up for most of the year gave me an aggregate total spent for each month.  Now that I have become a fledgling mustachian I have updated my spreadsheet to be more detailed.  And I now know that I'll be under 18k spent this year.  That's all expenses minus any loan payments and savings or retirement contributions.  That's including A LOT of fluff too.  Spent well over a grand in one weekend so my GF and I could follow our favorite band for 5 shows across 2 states.

I know, I know...  Not a very mustachian venture.

Big favorite band trips aside, there's still a bunch of easy fluff I could do without.  I'm planning on doing just that.

Goal is to be under 15k in 2018 and put everything else toward investments.  I get paid weekly and the first two checks of the month starting in January will go straight toward Vanguard.  Hitting the road with a 50% savings rate. My IRA will be maxed in April and by then I'll have the 401k sitch figured out, which is where the money will (hopefully) go from then on out.  By August I'll be making $5 an hour more than I am now, which should bump my savings percentage nicely.

That's where I'm at.  The last few years I've been counting the days to finishing my loans.  Since that's done I guess it's time to start counting the days to a 6 digit NW.  Couple years away still, but it's gonna be glorious!

Mr. Rich Moose

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #30 on: December 02, 2017, 01:21:03 PM »
Thanks for the replies guys!  The Collins and Investment Order links are going to be very helpful, I've read both now but have lots of work to do falling down the rabbit hole of secondary links!  It sounds like the VTSAX is where I should start.  That's really one of the biggest reasons I started this thread is I knew I could sit here and never start investing if I didn't find a place to start. 

My advice to a new investor is to just dump everything into VTSAX (or VTI) while you figure stuff out. There is no need (and some disadvantages) to diversifying beyond that til you have at least $50k total. Heck, I think it's perfectly fine to stick with 100% VTSAX (or VTI) up to at least $250k during the accumulation phase.

Spend the time learning, but remember that the motive of virtually all paid "financial guys" is to suck as much money as possible out of your pocket. For financial "news" they just want as many clicks/subscriptions as possible.

The correct answers for investing (do very little, invest in low cost index funds) don't really change much. Thus, no reason to publish a new month of Barron's or Money or whatever. So they try to keep it exciting, and not to your benefit.
I second this advice! Way too many new investors get caught up in asset allocation and investment plans when they don't need to early in the game. Even the effects of a big market correction can be quickly vanquished when you have a relatively small account and are dumping in thousands a month in savings.

Start buying stock index funds and just get in the habit of regular saving, regular investing, and learning to largely ignore market news.
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TomTX

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #31 on: December 03, 2017, 05:06:07 AM »
Amusingly, my own* VTI at Merrill Edge just topped $250k on Friday. So I am following my own advice.

Yep, it's all in VTI. I've been thinking about diversifying into some international. But that thinking has been going on for years now...

Oh, shoot. I forgot the 457 money at the current employer. It's all VIIIX, as that's the closest I can get to VTI. It's... some amount. Less than 10% of the above. I dunno. I would have to go look up the login. I only know the other account because it shows up automagically with my BoA login now.


*This does not count the VTI/VTSAX in my wife's accounts...
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tralfamadorian

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #34 on: December 03, 2017, 12:15:45 PM »
Two of my favorites if you may be considering diversifying into real estate:

https://www.amazon.com/Set-Life-Dominate-American-Dream/dp/0997584718/

https://www.youtube.com/watch?v=8EdFzYC-Vx4

talltexan

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #35 on: December 05, 2017, 12:33:47 PM »
Let me second the material by Paul Merriman. Good stuff!

Penn42

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #36 on: December 09, 2017, 11:11:43 AM »
I'm through the first Merriman book and making my way through the 101 Decisions one.  Lots of good info in there.  Definitely helping to refine my understanding of the whole process of investing.  That first one wasn't really geared toward the early retirement investor, but shorten the timescale and I'm sure all the advice works the same. 

I've put together a tentative budget for next year.  Looking to shoot for $1100 a month in expenses.  Here's the breakdown.

$250 - rent
$250 - food (that's for two and I'm shooting high)
$150 - FU fund
$125 - vacation fund (I do not have PTO, so this is a savings I would pay myself out of if I miss a day of work for being sick or whatever)
$100 - fun money.  Beginning of each month I'll withdraw 100 bucks and use that for eating out, movies, or whatever.  If any is left over it will          go towards next months' 100 bucks.  That is money for the both of us to do things.  My GF is in grad school and not making anything and I pay for most any activity out at the moment. This is definitely the least Mustachian thing on the list, but it will be less than I spent this year on such activities and I'd be remiss if I couldn't hit my favorite burrito shacks now and again. 
$48.18 - Auto and renters insurance
$31.94 - Internet
$25-ish - Phone.  Not sure how much my republic wireless is gonna be after taxes, but I'm going with the data-less plan when I switch over next month

Total: $980.12.  So there's some wiggle room built in there.  Anything left over will build in my debit account and will eventually get thrown into the FU pile to help pad it.  Assuming no large expenditures out of there, by the end of the year it should be in a place where I'm comfortable with it and can then nix the 150 a month. 

$1100 a month would put me at a 56.5% savings rate assuming each month is a 4 paycheck month (I'm paid every Friday).  However, there's 3 months with 5 Fridays, so those would bump that percentage a bit, but I haven't done the math.  I've got raises in February and August that will all be invested as well, so hopefully when all said and done I'll be over 60% for the year!


wienerdog

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Re: Investment Advice For The 20-something Just Starting Out?
« Reply #37 on: December 09, 2017, 09:11:39 PM »
I'm through the first Merriman book and making my way through the 101 Decisions one.  Lots of good info in there.  Definitely helping to refine my understanding of the whole process of investing.  That first one wasn't really geared toward the early retirement investor, but shorten the timescale and I'm sure all the advice works the same. 

He isn't early retirement at all but as you have found very sound advice.  If you listen to his podcast he gets excited if you save anything over 30%.  lol

If you're a google docs user you can use this to track your progress.  https://forum.mrmoneymustache.com/share-your-badassity/one-sheet-to-rule-them-all/  The beginning of the year is a good time to start.