Author Topic: Advice Requested  (Read 2905 times)

mrmoneymike

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Advice Requested
« on: July 01, 2018, 04:33:38 PM »
Hi all,

I'll cut right to it.

+I'm in my early 20's and I have no debt (none at all)
+I work for a large company in the Seattle area and make almost 100k a year. 
+I live with my girlfriend and we split rent.
+I am putting away a good chunk of my paycheck into a 401k with company matching.

I am saving roughly 40% of my take home pay (it's hard to save more; it's Seattle after all).

So I am saving a handsome sum of money in the bank. My question is, what should I do with it? I am weary of investing in the stock and or housing market because of how high it currently is.

Any advice for a young person like myself?




tyler2016

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Re: Advice Requested
« Reply #1 on: July 02, 2018, 07:05:23 AM »
My advice is to raise your income by becoming a star in your field, max out tax shelters and educate yourself on Investing in the mean time. More income means more cash to invest.

How much time have you spent studying investing? Here is a motivator for you. Wise investing can make the difference of hundreds of thousands or millions of dollars in your pocket over a life time. To be a successful investor, you must not follow the crowd or be deliberately contrarian, but free thinking and shrewd. You must think about investing rationally and develop gonads of steel so you have the ability to maintain that rationality during panics and manias. Don't stop reading and learning.

Here are some book recommendations:

The Intelligent Investor
A Random Walk Down Wall Street
Security Analysis
Common Stocks and Uncommon Profits
Irrational Exuberance
One Up on Wall Street
The Little Book of Common Sense Investing

Blogs:

mrtakoescapes.com
oldschoolvalue.com
jlcollinsnh.com

Other:

Warren Buffet's letters on the Berkshire Hathaway web site.

CowboyAndIndian

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Re: Advice Requested
« Reply #2 on: July 02, 2018, 07:10:33 AM »
If you have to read one book, this is it. It is excellent and best of all, free. I have used this books strategy as the core of my investing policy.

https://seekingalpha.com/article/15134-the-seeking-alpha-etf-investing-guide

At least read the one-page summary. https://seekingalpha.com/article/15136-etf-investing-guide-one-page-summary-of-the-entire-guide

Since it was written quite some time back, the ETF selections are a little dated/complex, but the idea is quite relevant.

I would do the following two if I was starting out now. Very simple portfolio which needs almost no work. I believe that these are what jcollinshnh recommends.
VTSAX (Total Stock Market) : 80%
VTBLX (Total Bond Market): 20%

Do not keep money in the bank, start investing. Make your green soldiers work for you!



mrmoneymike

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Re: Advice Requested
« Reply #3 on: July 02, 2018, 07:57:51 AM »
Thank you both for the replies. I have been investing in the stock market since high school, I am just very afraid of how high it is right now and a bit weary that we are due for a bear market.

I will take this time to read some of the books you have suggested to me!

I really appreciate the insight.

Lady SA

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Re: Advice Requested
« Reply #4 on: July 02, 2018, 07:58:04 AM »
I will just leave this right here: http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Good luck! From someone who is likely only a few years older than you (I'm 26) I would say you should educate yourselve about investing (I second the advice to read JCollins Stock Series on his blog) and go ahead and put your money in the market. You are young and have years and years ahead of you to ride out the inevitable bumps.

EDIT:
Check out the investment order thread also: https://forum.mrmoneymustache.com/investor-alley/investment-order/
You should definitely build up a cash emergency fund to where you are comfortable before investing the leftover. Some people are only at $1k, others are more like $25-30k. I personally want $12k, but ymmv based on you comfort level.
« Last Edit: July 02, 2018, 09:17:46 AM by Lady SA »

CowboyAndIndian

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Re: Advice Requested
« Reply #5 on: July 02, 2018, 08:51:12 AM »
I have been investing in the stock market since high school, I am just very afraid of how high it is right now and a bit weary that we are due for a bear market.


Market timing does not work!

If you knew how the market behaves in the short term, you would be very rich and not asking this question ;-)

trollwithamustache

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Re: Advice Requested
« Reply #6 on: July 02, 2018, 09:06:10 AM »
how many months emergency fund do you have?  Stock market investing has a risk component that takes some time and education getting used to.  But, the longer the run-way of months of savings, would hopefully give you the peace of mind to start making index fund investments with a 5 year or greater time-frame.

Bracken_Joy

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Re: Advice Requested
« Reply #7 on: July 02, 2018, 09:20:31 AM »
I think the biggest advice is around investing, as other posters have been addressing. You need both no fear, and no hubris. Invest, but don't stock pick. Don't market time. Just keep on keepin' on. Index funds and low expense ratios are your friends. You're not in this for the short term, so who cares if the market is high or low? Just buy those shares. =) Second the recommendation for Collins' stock series. http://jlcollinsnh.com/stock-series/

Second aspect: Look at the "investment order" to make sure you have your bases covered. https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

tyler2016

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Re: Advice Requested
« Reply #8 on: July 02, 2018, 09:26:12 AM »
Thank you both for the replies. I have been investing in the stock market since high school, I am just very afraid of how high it is right now and a bit weary that we are due for a bear market.

I will take this time to read some of the books you have suggested to me!

I really appreciate the insight.

In regards to being in the market since high school, I have  made the mistake of overestimating my skill on occasion. When I have done it, it is in areas where the majority of people are clueless or worse. Be careful with years experience in anything. 10 years experience of wiping before pooping just means you are an expert at doing it wrong. Keep in mind the Dunning-Kruger effect when it comes to the really important things in life, such as investing.

What do you mean by "high"? Do you mean high as in the indexes are at or near all time highs or high in relation to earnings, dividend yield, and book value?

Grogounet

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Re: Advice Requested
« Reply #9 on: July 02, 2018, 07:43:03 PM »
I'm not familiar with how expensive it is to live in Seattle, but your savings rate sounds low to me with no kids, no mortgage and splitting rent.

Johnez

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Re: Advice Requested
« Reply #10 on: July 02, 2018, 10:41:24 PM »
Read MMM from beginning to end. It's worth it. Read the comments. Some heavy discussion and tips in there.

For a quick run down of what to read:

MMM's roadmap to success:
http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/

Shockingly simple math:
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

How to invest:
https://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

Kinda scared of stocks? Here you go:
https://www.mrmoneymustache.com/2016/02/29/what-to-do-about-this-scary-stock-market/

mrmoneymike

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Re: Advice Requested
« Reply #11 on: July 05, 2018, 07:45:45 PM »
Thanks to everyone for the reply! I have some reading to do :)

mrmoneymike

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Re: Advice Requested
« Reply #12 on: July 06, 2018, 04:51:23 PM »
Just opened a Roth IRA in addition to my work provided 401k and maxed it out for 2018. That's a good start!

Thanks everyone.

-Mr Money Mike

csprof

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Re: Advice Requested
« Reply #13 on: July 07, 2018, 11:05:25 AM »
Just opened a Roth IRA in addition to my work provided 401k and maxed it out for 2018. That's a good start!

Thanks everyone.

-Mr Money Mike

Good!  Now put the allocation in a target retirement fund that's age appropriate and completely forget about it.

You're young and you're making a lot.  You'll likely go through several big market swings over the rest of your life.  The most important lesson:  You don't have to care.  If you put in 18 today and it's down to 9k next year, you're in a great position, because next year you're buying 18k at reduced prices.

Where you have to care and start thinking a bit more carefully is in the last years before you retire and the first few years of retirement.  That's when you're most vulnerable to sequence of returns risk.

Just don't panic if the market drops.  It will!  But you won't be able to predict when.  But it won't matter if t does:  Keep saving and you'll win in the long term.   A market drop in your 20s when you're employed is cause for celebration and redoubling your efforts to save and invest.  Make sure that the long term is the only thing that matters by having enough of an emergency fund/low enough spending/keep on having no debt that if you lose your job for a while you can float through it.  And you're set.

(I say this having gone through the dot-com bust in my mid 20s.  My portfolio was way down for several years.  And now it's not.  And then it was down in 2008/9.  And now it's not.  Those stocks I bought in mid 2008 are still worth more than double what I paid for them, and the stocks I bought in early 2009 are worth 5x what I paid.)

fixie

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Re: Advice Requested
« Reply #14 on: July 07, 2018, 08:25:08 PM »
Good for you for having the forethought and wisdom at this stage in life.  The above advice is very good, so do your research and you'll do great.  I live in Seattle, have a lady friend and a kiddo and support both with 95%, make less than you, twice your age, and still put away 60% of my income.
So, it's all about your choices and what you feel is important.  You're doing great and your future self will thank you...
-fixie

chasesfish

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Re: Advice Requested
« Reply #15 on: July 07, 2018, 09:19:15 PM »
Thank you both for the replies. I have been investing in the stock market since high school, I am just very afraid of how high it is right now and a bit weary that we are due for a bear market.

I will take this time to read some of the books you have suggested to me!

I really appreciate the insight.

My dad has been scared the market is too high since 2011, while I've stayed invested.  It's up 100% while his cash, gold, and guns portfolio looses value.

You're providing capital into the economy, long term a total market index returns slightly higher than the worlds economic growth rate, it's just not a slow and smooth ride

frugalfinancehippy

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Re: Advice Requested
« Reply #16 on: July 08, 2018, 10:23:00 PM »
You may also want to consider auto investing so you donít get caught up in the timing the market thing. Removes some of the hesitation at least if itís all on auto pilot. I always think of the info graphic ďthis is the topĒ whenever I think o can time the market. Just keep going. 40% at a young age is amazing too.

Raymond Reddington

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Re: Advice Requested
« Reply #17 on: July 08, 2018, 11:16:55 PM »
A bear market is nothing to worry about at your age.

If you buy investments, and they go down, and you are raking in cash by the bucketload as you claim, then you simply buy more as stocks go down.

As many stocks decrease in value, the dividends they generate don't. Therefore, the yield is effectively higher on these stocks the cheaper you are able to get them at. As stocks go down, you buy more if them each time you contribute, and each dollar effectively earns you more provided the yields don't get dinged by the recession. Even if they do, however, you will end up purchasing more shares as the stock price goes down, so when things recover and the price begins to appreciate again, the dividends will grow again, and not only that, you will own more shares when they do appreciate making your investments more valuable.

The same holds true when you invest in indexes.

Try not to look at your investments from the standpoint of what they are worth. Try to look at them from the standpoint of how much annual income they generate for you, and what this yield is based on the value of the account. This somewhat contrarian way of looking at things will help you do as Warren Buffett recommends in classic value investing - be greedy when others are fearful, and be fearful when others are greedy. Of course, look at this in aggregate, and don't chase individual investments strictly because of high yield - be sure whatever you are buying is fundamentally sound first.

The key is saving a significant enough portion of your earnings (as you seem to be) that an economic downturn will allow you to go nuts buying things on the cheap (it's an opportunity, after all), while continuing to contribute even when valuations are stretched, because predicting a market top is too difficult to spend energy on, especially since you'll probably get it wrong anyway (as will most others who try).

MrThatsDifferent

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Re: Advice Requested
« Reply #18 on: July 09, 2018, 02:33:56 AM »
I wish I was where youíre at now when I was your age. Anyways, try to work through your fears. You have time on your side. I took all the advice and there were 2 common pieces from virtually everyone: dollar cost average (so pick an amount and drop that into your invest vehicle of choice on a scheduled basis) and Vanguard index funds (which I simplified even more by doing a life strategy fund). Boom, done. Iíve saved more money than ever and my money is growing. If it goes down, Iíll be buying it super cheap. Every time it goes down, it rebounds. This is the strategy, more or less, that MMM used and youíre on his site, asking people inspired by him for advice. If it made him FI, why wouldnít it do the same for you? He hasnít written any articles about not trusting index funds or getting out of it. Donít let your fear and ignorance control you. Also, donít over complicate. Itís dead simple and boring. But it works. Your money doesnít need to be a thrill ride, it needs to be a steady growth engine.

civil4life

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Re: Advice Requested
« Reply #19 on: July 09, 2018, 09:29:37 AM »
I believe everyone has provided sound advice.  I figured I would spend a little time reiterating some and touch a couple other things.

First many have mentioned the investment order - https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

This is the best way to max out tax advantage accounts.  Hopefully giving as little as possible to uncle sam.

You are very young so you have time to ride out any bear market over the next several decades.  If you are too worried you can always put your money in lower risk investments, but I definitely would not suggest it.

I am not very investment savvy so I put my money in index funds that are based on your age.  These funds are a large mix of different stocks managed for you.  As you age the funds are adjusted from higher to lower risk.  Based on your age I would guess a 2060 or 2070 fund would be appropriate.

Beyond investing...just some things to consider.

What are your goals and dreams?
Do you want to FIRE by a certain age?
Do you see your self owning a home or having kids?
You mention a girlfriend.  Is she on the MMM bandwagon with you?

Take some time thinking about those things as well.

Lastly, avoid lifestyle inflation.  You are in a prime location (Seattle) for that to happen. 

Good Luck