Author Topic: 26 y/male - Go all-in with stocks? Or save for a down-payment?  (Read 2449 times)

aldrimer

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Hi guys!
I'm a 26 year old guy from Scandinavia and I've been living the Mustachian lifestyle for about a year now - absolutely LOVE it! I have a savings-rate of around 70% and due to my frugal lifestyle I was able to slay all my student loans in 9 months (!)
My current situation - debt free with an emergency fund of approx. 4200US$ (Enough for 6-7 months of living expenses) and approx. 18000 US$ invested in a low-cost (0.3%) MSCI World index fund.
Since I don't have student loan payments from now on I can really start to up my game in terms of saving and investing. With my current salary I will be able to save around 2000 US$ each month.

Now, here's my dilemma -
Should I go all-in with stocks? Or should I save for a down-payment for a small condo? Or maybe invest 30% and save 70% for a down-payment?
I'm single and childless, and plan to keep it this way (personal choice). I live a very minimalistic life, and value freedom above everything else. Up until now I just wanted to be a life-long renter, as I really don't want to be tied down to a specific location at this point in my life. I love to travel and would like to see the world. However, I'm getting really tired of living with room-mates, and renting an apartment alone here is pretty expensive. So buying a small condo is getting more and more tempting.

I know this is a very personal decision, but I would love to get some advice from someone who's been in my shoes before!
What pros and cons should I be aware of regarding these options?

Thank you so much for your help,
- aldrimer

pbkmaine

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #1 on: May 24, 2016, 06:19:33 AM »
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Generally it's better to rent until you are sure you plan to stay put for 10 years or so, but play with this calculator and see what it tells you.

nereo

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #2 on: May 24, 2016, 06:29:52 AM »

Now, here's my dilemma -
Should I go all-in with stocks? Or should I save for a down-payment for a small condo? Or maybe invest 30% and save 70% for a down-payment?
I'm single and childless, and plan to keep it this way (personal choice). I live a very minimalistic life, and value freedom above everything else. Up until now I just wanted to be a life-long renter, as I really don't want to be tied down to a specific location at this point in my life. I love to travel and would like to see the world. However, I'm getting really tired of living with room-mates, and renting an apartment alone here is pretty expensive. So buying a small condo is getting more and more tempting.

I know this is a very personal decision, but I would love to get some advice from someone who's been in my shoes before!
What pros and cons should I be aware of regarding these options?


Welcome!

First, I just want to point out that these two options serve two different purposes.  Investing in a stocks (via a low-cost fund) is building a 'stache FI, while buying a home is more about having a permanent place to live (which can have both good and bad aspects) and less about being FI.
My initial, gut reaction whenever someone asks this question is that they should be investing as much as they can.  If/when you are certain you want to buy a home you can start saving for a down payment (and you can use some of that money you've been investing for that purpose).

You mention not liking the roomate situation - it might take some work but this can often be solved by finding a place that allows you to have a lot of your own spaces - not just your own room but also your own bathroom and private entrance.  Finding the right roommates (ones you share interests with and want to spend time with) also goes a very long way. 

Also - if you think studio apartments are expensive, I can assure you that owning your own place as a single person can be even more expensive.  You become responsible for all the upkeep, repairs etc. and you loose the ability to move quickly when an opportunity becomes available (job, traveling, etc).  +1 to pbkmaine's link to the rent/buy calculator.... check it out and input numbers for your area... owning can be effing expensive, particularly if you move frequently.

glad to hear you have such a high savings rate already - that will open up lots of options for you down the road.

aldrimer

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #3 on: May 24, 2016, 06:41:20 AM »
Thank you very much for your quick and helpful answers, pbkmaine and nereo.
I will definitely check out that calculator, and you have some great points there, nereo!
Like you said, the cost of maintenance / insurance / property taxes etc. are the things that scare me away from owning. And I don't like the opportunity cost of not being able to move on the spot if I find a cool gig somewhere else in the country / internationally.

Again, really appreciate the responses! Got some thinking to do now :)

nereo

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #4 on: May 24, 2016, 06:47:25 AM »
Thank you very much for your quick and helpful answers, pbkmaine and nereo.
I will definitely check out that calculator, and you have some great points there, nereo!
Like you said, the cost of maintenance / insurance / property taxes etc. are the things that scare me away from owning. And I don't like the opportunity cost of not being able to move on the spot if I find a cool gig somewhere else in the country / internationally.

Again, really appreciate the responses! Got some thinking to do now :)

Everything you are saying suggests to me that you aren't in a stage of your life where you should be owning your own place.  For now I would spend a lot more time trying to find the "perfect" rental for you... figure out what you don't like about your most recent rentals and try to find a unit that avoids those problems. 
You can always change your mind later and buy a place, but it's a lot more work to sell a place you've purchased.

Retire-Canada

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #5 on: May 24, 2016, 07:08:22 AM »

What pros and cons should I be aware of regarding these options?

Thank you so much for your help,
- aldrimer

If you have no specific plans to buy a condo invest all your money. If at some point you do come up with specific plans for a home/condo purchase then you can start to save towards that and move $$ from investments as appropriate.

You have a large emergency fund sitting there the last thing you need is more money sitting around for an undefined "what if" not getting as much return as possible.

Albatross

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #6 on: May 24, 2016, 10:39:59 PM »
Perhaps the only one to provide a different point of view here. I am in a similar situation, aged 28, but I intend to buy a place in the next 1 to 3 years (depending on whether the property market HK stabilises and/or drops).

I have stopped contributing to index funds since late 2014, and whilst it has taught me a lot about investing, overall the markets have been brutal and I am down 5 to 10% (already taking into account previous profits and dividends distributed). In a way I regret keeping so much money in equities so close to a time when I intend to buy, as it meant that I do not have the flexibility of withdrawing such money from my index funds (I do not want to chrystallise on a loss). I have therefore been saving hard in cash since then and do not have anything close to a deposit saved. I am not sure what it is like there, but in HK the required deposit is 40 to 50% of the property value (and a tiny flat here costs about HK$6.5m, which is around US$840,000).

Apart from perhaps the unique situation in HK, it is generally sound investment advice not to put money into relatively risky investments (i.e. equities) if you intend to use that money in 3-5 years time.

If I were you, I would therefore ask myself when (generally) I would want to buy a place, and if it is in the next 3-5 years, I would reduce exposure to equities. As to how much you reduce that exposure is a matter of risk appetite. Hope that helps. I'm still licking the wounds of poor risk management!

Financial.Velociraptor

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #7 on: May 25, 2016, 07:58:05 AM »
It sounds to me you are better off renting.  I have enjoyed being a homeowner but have to tell you it is an anchor sometimes.  That just doesn't fit with your current value system. 

You could split the difference and carry a large cash or near cash emergency fund to keep your options open.

dougules

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #8 on: May 25, 2016, 09:25:16 AM »
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Generally it's better to rent until you are sure you plan to stay put for 10 years or so, but play with this calculator and see what it tells you.

+1  That's really cool.  I always tell people they need to do the math on rent vs buy, but this calculator does it for you.  People always forget that mortgage interest and escrow are essentially just another way of paying rent.   And as a side detail, I wouldn't put in more than 4-5% on "investment return rate" right now given PE ratios where they are. 

k9

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #9 on: May 25, 2016, 12:58:02 PM »
Sounds like you should be renting / investing your money.

aldrimer

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Re: 26 y/male - Go all-in with stocks? Or save for a down-payment?
« Reply #10 on: May 25, 2016, 01:10:47 PM »
Thank you guys very much for your answers!
I was going back and forth between whether or not I should rent before posting this thread, but now I'm more confident in continuing renting while saving and investing. Again, thank you guys so much for your advice! Highly appreciated!