Author Topic: 30 Years Old and Need Some Financial Advice  (Read 7598 times)

DoogRPV

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30 Years Old and Need Some Financial Advice
« on: November 09, 2013, 12:11:27 PM »
Just turned 30, single and living in a very expensive city, Los Angeles. I have no plans of moving anytime soon given my friends and family are here. So here is a run down:

  • I own a loft in Downtown LA; bought it for $365k owe $280k and can sell it for $500k+. I bought at a very good time in 2010, the market has skyrocketed in Downtown LA over the last 3 years.
  • I have about $140k in savings and checking accounts.
  • I have about $130k in my 401k; I have been contributing the max for the last 3 years or so.
  • I work as a Director (recently promoted in the last month) in a Big 4 firms technology/IT consulting practice; this year I'll earn about $175k (from W2) and expect to increase my earning power greatly as a I become more experienced in my new position.
  • I'm very inexperienced when it comes to stocks, bonds, trading, the markets, etc

I've been putting away a lot of cash primarily with the goal to purchase another home or condo. I would keep my current loft and rent it (not sure if I would make any money off this but it should be able to pay for itself at a minimum).  Given LA prices are ridiculous and in my opinion heavily inflated, I may hold on the idea of purchasing for now, though I have the money. My other thought was to invest in some Vanguard mutual funds but once again I almost feel the market is over-inflated and its probably not the best time to buy while prices are really high. As mentioned I'm very inexperienced on the markets but I just have a gut feeling things are not right and its not a good time to dump big chunks of money into it (I could be completely wrong).

So given this, I'm really looking for some advice around what to do with the cash savings I have. Does it make sense to keep in savings earning the less than 1%? Etc. Any help and advice would be greatly appreciated. Thank you in advance.

Frankies Girl

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Re: 30 Years Old and Need Some Financial Advice
« Reply #1 on: November 09, 2013, 12:41:27 PM »
Knowing what I know now, I'd definitely recommend opening the Vanguard account and investing in index funds. You say yourself that you don't know much about it, but feel that it's over-inflated and that's what is holding you back... but the fact is, the market always goes up, and as long as you hold for the long term, you will make money. And any short term loss will recover and STILL make money. Do some reading on index funds, basic investing and understand the risks and rewards.

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

http://jlcollinsnh.com/stock-series/

I've been investing for a bit over a year now (just started getting my assets allocated the last few months) and it does sting a little when you just bought in and the next day it loses money. But if I look at it a week or so later... it's gained that back and more. So I'm learning to stop checking it often and just leave it alone, other than to put in more money when possible. I consider it a happy accident when I buy when the market just dropped as I got the fund "on sale" tho.



Real estate investing is also a great path to building wealth, but I personally don't have the temperament or interest in becoming a landlord... but there are plenty of folks on here that are and do very well.

You're in a great position with a super income to become financially independent pretty fast - so congrats on doing a good job with your savings and debts

the fixer

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Re: 30 Years Old and Need Some Financial Advice
« Reply #2 on: November 09, 2013, 12:54:53 PM »
Savings accounts definitely don't make sense. You're losing at least $100/month in real, inflation-adjusted terms (ballpark figure assuming 1% interest and 2% inflation), not to mention all the money you could be making but aren't.

If you want to get into stocks & bonds, come up with an asset allocation and buy one or two low-cost diversified mutual funds which make sense to hold in a taxable account (e.g. total stock market index, international index, municipal bonds). This is not a bad time to buy, it's probably just not a screaming deal anymore like it turned out to be a few years ago. Even in 2010/2011, there was a lot of uncertainty and it wasn't a no-brainer. You're looking for the market to give you signals that never appear except in hindsight. Meanwhile, not buying and sitting on cash is statistically more likely to cost you money (-3% average returns due to inflation) than buying (7% average returns). And remember, even if the market crashes the day after you invest, historical returns suggest you'll get your money back and then some in 10 years or less (for the financial crisis it was about 5 years without considering dividends).

A rental property can also make a lot of sense. Make sure you understand how to do the math on telling whether a property is a good deal or not, and apply that logic to your condo: if you didn't already own it, would you buy it today to turn into a rental? Condos can be hard to cashflow because condo fees are such a large expense, but it is possible for it to work. Remember the principle of opportunity cost: compare returns on your equity from renting your condo versus selling it and putting that money in stocks.

After all that, it comes down to personal choice. Do you want the well-diversified, volatile, no-effort returns from the stock market or a single investment, (less?) volatile, medium-effort higher returns you can get in owning real estate? Doing either one (or both to some extent) has made many people wealthy as long as you understand how to make each one work.

footenote

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Re: 30 Years Old and Need Some Financial Advice
« Reply #3 on: November 09, 2013, 12:56:45 PM »
Great advice above - what's your 401k invested in?

DoogRPV

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Re: 30 Years Old and Need Some Financial Advice
« Reply #4 on: November 09, 2013, 01:16:44 PM »
Fixer and Frankies thank you for the advice. Fixers comment...<i>"You're looking for the market to give you signals that never appear except in hindsight.</i>, couldnt have been more spot on. I do keep an eye on the Dow and have watched it go from 7k to what it is now thinking..."Yea it doesnt seem right so I'll wait". In hindsight I shouldve jumped in.

The other part that makes it a bit tough for me is independence restrictions. I cannot own stocks in companies the firm I work for audits. Unfortunately the firm I work for audits about 25% of the Fortune 500. I have done some research and there are options that Vanguard has that are permissible for me to own. There is also the potential if my firm picks up an audit at a company I own stocks in I would have to sell my position in 60 days I think (whether I gain or lose money). This type of stuff along with my doubts and inexperience have made me extremely gun shy when it comes to the market.




the fixer

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Re: 30 Years Old and Need Some Financial Advice
« Reply #5 on: November 09, 2013, 01:45:57 PM »
Hmm, are you sure you're not allowed to own total-market index funds? My Dad is a government employee subject to lots of ethics rules about owning stocks in certain industries, but he's able to buy index funds in his TSP that certainly own companies he's not allowed to own directly.

Your company may be subject to different rules, of course, but if you haven't explicitly asked that question yet I suggest you make sure you understand the details.

footenote

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Re: 30 Years Old and Need Some Financial Advice
« Reply #6 on: November 09, 2013, 02:31:47 PM »
Another option is a blind trust.

chasesfish

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Re: 30 Years Old and Need Some Financial Advice
« Reply #7 on: November 09, 2013, 05:14:00 PM »
Congrats on the hard work! 

If I were in your situation, I would consider a few options:

- Open an account with Vangaurd and see if the Vanguard Wellington fund is permissible for you to own.  3rd Party management with really low fees.  I also think the market is high, so I'd go and send them 10k a month.

- Pay down your mortgage.  Really, just send them a big check.  It's a guaranteed rate of return and your already invested in the market via your 401k

- See if your firm has a non-qualified plan for highly compensate employees.  I work in the finance industry with a similar pay and it allows me defer up to 50% of my taxable income.  You can do that, supplement any shortage with your savings, and enjoy a lot lower tax bill for a few years.

OptimusFrugal

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Re: 30 Years Old and Need Some Financial Advice
« Reply #8 on: November 09, 2013, 11:01:23 PM »
Look up the NAIC (National Assoc of Investment Club) and join an investment club in your area ( or start one) .  I did it for a few years with some friends at work.  We had a great time learning about investing together and drank a few good beers while we did it. You need to educate your self on investing, as some day soon your investments will be making you more money than your job.

2527

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Re: 30 Years Old and Need Some Financial Advice
« Reply #9 on: November 10, 2013, 10:07:17 AM »
Even if you can't own stocks your firm audits, you can probably own mutual funds that own those stocks.  You can check with HR or Compliance. 

My advice is to learn as much as possible about mutual fund investing and ease into it.  I earned less than you do and went from $0 to $1M in 19 years, entirely through mutual funds, and then from $1M to $2M in 8 years.  Sometimes I bought aggressively at what seemed to be lows:  Black Friday of 1987, the Asia Crash of around 1994, and the Crash of 2008/9.  Other times, I bought at what seemed like highs at the time, but it has all worked out in the long run.

Try to keep a lid on lifestyle inflation. 

DoogRPV

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Re: 30 Years Old and Need Some Financial Advice
« Reply #10 on: November 10, 2013, 11:22:47 AM »
All great advice, thank you so far. I keep a pretty tight lid on my spending and live way below my means given I'm not a big spender nor do I have any dependents (e.g.. wife or kids) and really only shop for clothing, goods, etc when I know I'm getting a deal. I can't fathom how one can spend $200 on a nice shirt at a nice department store when it will be on sale for $70 in a few months.

I think for next steps I'll start looking into mutual funds, including index funds and the Wellington fund. I just read into deferred compensation but will need to look into it further.

SunshineGirl

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Re: 30 Years Old and Need Some Financial Advice
« Reply #11 on: November 10, 2013, 12:00:47 PM »
I would hesitate to buy more real estate in LA because you won't be diversified. I concur with Vanguard mutual funds, dollar-cost averaging from now over a period of the rest of your working life will even out the buying-too-high worries you have.

mlipps

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Re: 30 Years Old and Need Some Financial Advice
« Reply #12 on: November 10, 2013, 12:38:35 PM »
All great advice, thank you so far. I keep a pretty tight lid on my spending and live way below my means given I'm not a big spender nor do I have any dependents (e.g.. wife or kids) and really only shop for clothing, goods, etc when I know I'm getting a deal. I can't fathom how one can spend $200 on a nice shirt at a nice department store when it will be on sale for $70 in a few months.

I think for next steps I'll start looking into mutual funds, including index funds and the Wellington fund. I just read into deferred compensation but will need to look into it further.

I can't fathom how you can spend $70 on a shirt.

chasesfish

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Re: 30 Years Old and Need Some Financial Advice
« Reply #13 on: November 10, 2013, 01:54:56 PM »
All great advice, thank you so far. I keep a pretty tight lid on my spending and live way below my means given I'm not a big spender nor do I have any dependents (e.g.. wife or kids) and really only shop for clothing, goods, etc when I know I'm getting a deal. I can't fathom how one can spend $200 on a nice shirt at a nice department store when it will be on sale for $70 in a few months.

I think for next steps I'll start looking into mutual funds, including index funds and the Wellington fund. I just read into deferred compensation but will need to look into it further.

Dress shirts are $17.99 at Costco and no one that looks at you can tell the difference.  Trust me, I compare them to the Brooks Brothers I once bought on clearance at a factory outlet (the one time I spent $40 on a dress shirt).

It sounds like you're going in the right direction, Wellington should pass your compliance department.  Also, I'm not sure what rate your mortgage is at but consider a nice prepayment too. 

On the deferred compensation, I get a letter that shows up in May telling me I'm eligible for next year.  Its not something they advertise or HR knows a lot about at my company, one of my frugal co-workers told me about it before the letter came. 

Siamond

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Re: 30 Years Old and Need Some Financial Advice
« Reply #14 on: November 10, 2013, 02:08:05 PM »
DoogRPV, you're an IT guy. So I guess you have a solid engineering and analytical background.

My advice is simple. Keep things the way they are for this winter, you're doing fine so far. Read a couple of good books on investing, notably the passive investing crowd. And when I say read it, I mean TRULY INTERNALIZE the content. Read 10 pages, stop, think about it, mull it over, maybe play a bit with Excel to understand the math, don't hesitate to read again what you didn't understand the first time. Repeat. Once done, mull it over for a few more weeks. Then start to make a plan... Then go ask questions on this forum and on the Bogleheads forum. Take your time, don't make a move until say spring 2014. Then you'll be ready.

I am biased towards the Four Pillars of Investing by William Bernstein, it opened my own eyes SO MUCH, but there are a few other good ones. This will be your BEST INVESTMENT EVER. I totally mean it.

stevewisc

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Re: 30 Years Old and Need Some Financial Advice
« Reply #15 on: November 10, 2013, 02:55:35 PM »
I would start with a couple US and global index funds.  Develop the habit of investing don't worry too much if the market is over priced or under priced.  Predicting the future is pretty tough.  Building investing habits is important - the exact return the first few years will make no difference compared to having/not having the investing habit.

Also, I would avoid a business where the plan is to break even - more likely then not that will end with losing money.  "I would keep my current loft and rent it (not sure if I would make any money off this but it should be able to pay for itself at a minimum)."  If you really want to be a landlord maybe find a market where there is enough demand to make some money off your work and investment. 

Snowboard junkie

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Re: 30 Years Old and Need Some Financial Advice
« Reply #16 on: November 10, 2013, 07:56:56 PM »
Step 1. Pay off your mortgage
Step 2. Start learning about investing
Step 3.  Clarify the restrictions and potential benefits that apply to you.
Step 4.  Invest as much as you feel comfortable investing.

Progress towards financial independence is of no value of you're losing sleep over the process.

But, at some point when you have a paid off mortgage, and are wondering what to do with spare cash, you will come to the realization on your own that since you don't need that money in the short term, it doesn't matter what the daily fluctuations in stock market value are, and that you can afford to be a long term investor.  When that happens, invest.

DoogRPV

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Re: 30 Years Old and Need Some Financial Advice
« Reply #17 on: November 14, 2013, 11:25:15 PM »
All great advice! Thank you. Anyone have other thoughts...?

arebelspy

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Re: 30 Years Old and Need Some Financial Advice
« Reply #18 on: November 15, 2013, 07:51:55 AM »
All great advice! Thank you. Anyone have other thoughts...?

Just reposting the best link in the thread:
http://jlcollinsnh.com/stock-series/

Read it, then read it again.  :)

Also, if you want hard assets: rental properties, depending on the person, can be a great way to hit FI really quick.
« Last Edit: November 15, 2013, 07:55:38 AM by arebelspy »
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clutchy

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Re: 30 Years Old and Need Some Financial Advice
« Reply #19 on: November 15, 2013, 09:56:34 AM »
You're doing everything I should have been doing 3 years ago.  Your 33 year old self will thank you!