Author Topic: Please Advise this New Mustachian :)  (Read 821 times)

Anthia

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Please Advise this New Mustachian :)
« on: September 01, 2019, 01:32:37 AM »
Hi everyone!

A new member here, that has been reading along since years, but finally taking the plunge to seriously start saving up thanks to all your inspiration :)

Here's our situation:

We currently own:
25.000 in savings on our bank accounts
15.000 in ETF's
5000 in a "Bausparvertrag" (old German bank account with rate of return of 4%) - we can add up to 10.000 in this account

Our costs of living are 1500 / month

We can currently start saving: +- 1000 / month

So now our question: what do you advice to do with our 30.000 savings?
How much of it shall we invest and over what time span? And in which shall we invest?
We are afraid to invest it all in ETF's now, because of the posts about the speculated upcoming crisis.

Additional question: is it a good idea to start saving 1000/month now and putting it all into ETF's?
Or is there an alternative that is smarter?

Thank you so much for your wisdom!

former player

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Re: Please Advise this New Mustachian :)
« Reply #1 on: September 01, 2019, 04:29:57 AM »
Hello and welcome.

There are German members of the forum who should be able to give you more specific advice, but from what you say putting Euro 5,000 of your cash savings to max out the Bausparvertrag seems like a no-brainer: 4% is a decent no-risk return over inflation for you.

After that, I think the question is: what are you saving for? You have a potential 20k in your bank accounts to do something with and then the additional 1k a month.  So: Emergency fund?  Retirement?  House purchase? Cost of any future studying? Other (mustachian, of course) purchases?  What you want it for will help work out what to do with it.

As to investing, yes the world economy is looking a bit fragile at the moment, including in Germany.  So the question becomes: what is your timeline?  If you are saving in order to spend in the next year, then you should be looking for the highest interest cash account that is still low risk.  If you are saving for your future pension then you probably have decades before the investments you buy now will need to be sold: by the time that happens you will have totally forgotten at what rate you invested all those years ago in 2019.  So I would suggest that any retirement money you are investing from your monthly savings is set to automatically invest and not to worry about its current ups and downs.

Anthia

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Re: Please Advise this New Mustachian :)
« Reply #2 on: September 01, 2019, 10:39:20 AM »
Thank you so much, former player. So much appreciated and you are right - we should have added our investing goal!

Our goal of investing is (early) retirement.

We agree that we indeed believe it's a great idea to max out the Bausparvertrag.

That keeps us with one "dilemma": our fear that it is "stupid" to start investing our savings right before the upcoming crash. We wonder if it would be better to wait. The consequence is that we are now doing nothing with the money, which might be an even worse idea. :)

An alternative use of the savings would be to invest it into online marketing campaigns for our company. However, since we have never done paid advertising and are not sure what the results will be, so this seems a riskier investment.

So these are our options:
1. Leave the 25.000 on our bank account, until economy crashes, then start investing
2. Invest a sum of the grand total in ETF'S every month from now on
3. Invest in our own company
4. (something we didn't think about yet?)

Anyone reading this,  I am so grateful for your opinion on which of the options you think is best (and why).Thanks so much in advance.

Blackadder

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Re: Please Advise this New Mustachian :)
« Reply #3 on: September 02, 2019, 08:53:27 AM »
TL;DR: option 2.

One piece of advice you will often be given here is that waiting for a market downturn to happen is essentially the same as gambling on market timing, in other words, it is not investing, but it is speculating.

Some five or six years ago, I would not have fully agreed to this statement, but now I do. After refraining from investing for about 3 years, waiting for a what I thought would be an inevitable downturn, which did not come (but will surely now!!11 Haha, right. No way of knowing.), I finally started investing, expected up- or downturns be damned.

But I also am/have been scared to invest any built-up savings in one single moment in time, so I've chosen to invest regularly instead. The jury of whether the accompanying cost-averaging is actually better (regarding gain and risk) than investing in a lump sum is still out there, but it just gives me more ease of mind. I am shifting the ca. 30-to-70-distribution between investments and cash towards a set goal distribution over time.

My suggestion would be:
1. Max out the Bausparvertrag and stick it out as long as you can (but avoid making it ready to pay out early, "Zuteilungsreif")
2. Determine what goal distribution between investments and cash you want (e.g. 10.000 in cash, rest investments)
3. Determine how long you want to smooth out the transition (longer if you are scared of a crash, shorter otherwise). Longer means that you forgo returns in exchange of the ease of mind, however.
4. Build your investments, partially from income (the ~1.000), partially from cash savings
5. Keep it on autopilot (with yearly rebalancing) and *avoid to regularly check how your investments are doing*

I can't say much about option 3, but it sounds more like part of work to me than personal investing.
« Last Edit: September 02, 2019, 08:58:14 AM by Blackadder »

mozar

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Re: Please Advise this New Mustachian :)
« Reply #4 on: September 03, 2019, 09:47:49 AM »
Being that Germany's economy did contract in the second quarter I can understand your concern. But you still can't time the market. As long as you think Germany is a going concern (will continue to exist as a country) you should keep investing on a regular schedule.

bbates728

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Re: Please Advise this New Mustachian :)
« Reply #5 on: September 03, 2019, 10:48:53 AM »
Hi! Welcome to the forum!

I want to echo what others have said and maybe be a bit more radical. It is important to remember that your money will be in the market for decades and therefor it isn't important when you initially drop your money in nor is it important what happens in the day-to-day fluctuations. Even a tremendous crash is not likely to affect the entire global economy at a scale that will permanently reduce our ability to produce (and consume) for the next 10-15 years (my most vulnerable timeframe for the 4% rule). If it does indeed ruin the global economy for decades to come....well, that's what happens when there is risk. Additionally, I will continue to invest during that down market so should be able to continue to work towards FI.

I think it is important as a matter of principle to conquer the fear and doubts of having my money in the market early in the process. Additionally, what is the worst thing that will happen if your 20k becomes 15k or even 10k? You wouldn't be spending it in the next few years anyway if you are working towards retirement!

Good luck and let us know what you end up going with and how you feel about it!