Beginner Questions (Maybe you know the answers?)

[Gatzbie]

I'm brand new to investing and have decided to use this thread for any questions that pop into my head as I learn more and more. Instead of making a new thread for every time I have a new question, I will just post them here! If you can offer your experience or perspective, I would greatly appreciate it, I READ ALL POSTS and am thankful for each one of them!

SEE LAST POST for most recent questions! :)

Overall, I'm just starting to invest money (I'm 21 currently) and will be pursuing early retirement for my long-term goal.  I'm trying to figure out how to go about this but am getting confused by the plethora of information out there (I'm trying to keep thing as simple as possible)

Current status:  I just set up a Vanguard Roth IRA account and have 5k to invest. 

Questions: 

1.)  I can buy 2 audiobooks.   For Book #1 what would you recommend for me to buy that could teach me everything about index investing (asset allocation between bonds and stocks, rebalancing, taxes, the best indexes to put money into etc.)  No need for lectures on why index investing is better but if its a mix of this and teaching about index funds, I'm cool with that.

For Book #2  A good book about everything there is to know about renting out properties.

2.)  On Roth IRA's you can only contribute so much per year to them,  what if I have more money I want to use to invest?  Should I make a "General Savings" account on Vanguard and put more money into indexes here but will be taxed more? (One post I saw on here, many people  have tons of different account types!)

3.)  If there is some sort of penalty for taking money out of your Roth IRA (before age 59.5) how does this workout if I want to retire early?    Nvm  forummm has a post on this

4.) There are so many index funds out there......  some have target retirement dates and automatically adjust your stock/bond allocation as you age,  some don't do this and you have to do this manually.  Some have different expense fees.  Some invest internationally and some don't.  So many different choices... but what ones would be the best for early retirement?


That's all I have for now.  I'd be very thankful if anybody could offer some input on these thing!








 

[Telecaster]

1.)  I can buy 2 audiobooks.   For Book #1 what would you recommend for me to buy that could teach me everything about index investing (asset allocation between bonds and stocks, rebalancing, taxes, the best indexes to put money into etc.)  No need for lectures on why index investing is better but if its a mix of this and teaching about index funds, I'm cool with that.

I recommend the Four Pillars of Investing by William Bernstein.  You'll learn all that stuff in more detail than you thought possible.   Yes, it is a dense reading, you'll know more about indexing and how to construct a portfolio than most money managers.   

2.)  On Roth IRA's you can only contribute so much per year to them,  what if I have more money I want to use to invest?  Should I make a "General Savings" account on Vanguard and put more money into indexes here but will be taxed more? (One post I saw on here, many people  have tons of different account types!)

Yes you should, for a variety of reasons. 

4.) There are so many index funds out there......  some have target retirement dates and automatically adjust your stock/bond allocation as you age,  some don't do this and you have to do this manually.  Some have different expense fees.  Some invest internationally and some don't.  So many different choices... but what ones would be the best for early retirement?

That's really up to you.  Here's an interim solution that you absolutely cannot go wrong with:  80% VTSAX (Vanguard Total Stock Market Index) and 20% VTBLX (Total Bond Index).   Do that while you are studying up. 

You can make good arguments that a younger person should have a higher percentage in stocks, maybe some REITs to provide balance, a slice of international, etc.  But no one can really say which is "best."   No one knows what the future holds, so you need to make a plan and stick with it. 

So read the Four Pillars.  Like I say, it dense, so take a month to do it.  And then come up with a plan. 











 
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[Gatzbie]

Will do all of these things right now.  Thank you very much, I appreciate it :)

[MustacheAndaHalf]

Visit the library for two reasons: a variety of investing books without cost to you, and fostering this idea of saving money when you can.  For starting out, "The Investment Answer" clocks in at ~96 pages - a quick read.

If you read "A Random Walk Down Wall Street", you'll think more highly of indexing.  The top funds keep changing, but longer term records show indexing beats them.  So when you put everything in VTSAX, you're actually putting all your money in all the stocks (roughly speaking).  It's a very diverse investment.

[Gatzbie]

Yea, I have listened to plenty of Bogle videos on youtube and his book "Enough" to understand how indexing wins in the long run.  MMM is a good example of how saving can tremendously help with retiring early.  I have those things battered into my brain already, I am now exploring how about to do those things exactly.  I used one of my credits for the book "Four Pillars" by William Bernstein and am already 42 mins into it! 

[MDM]

Some shorter "getting started" reading material (note that these may not give identical advice, but if you follow any of it you will likely do well):
www.etf.com/docs/IfYouCan.pdf
http://jlcollinsnh.com/stock-series/
http://www.bogleheads.org/wiki/Category:Getting_started
https://www.bogleheads.org/forum/viewtopic.php?f=1&t=6211

For longer works, http://www.mrmoneymustache.com/the-mmm-reading-list/ - Haven't read them all, but A Random Walk Down Wall Street by Burton Malkiel and The Four Pillars of Investing by William Bernstein were good.

See also the various tabs in the case study spreadsheet.

[Gatzbie]

Some shorter "getting started" reading material (note that these may not give identical advice, but if you follow any of it you will likely do well):
www.etf.com/docs/IfYouCan.pdf
http://jlcollinsnh.com/stock-series/
http://www.bogleheads.org/wiki/Category:Getting_started
https://www.bogleheads.org/forum/viewtopic.php?f=1&t=6211

For longer works, http://www.mrmoneymustache.com/the-mmm-reading-list/ - Haven't read them all, but A Random Walk Down Wall Street by Burton Malkiel and The Four Pillars of Investing by William Bernstein were good.

See also the various tabs in the case study spreadsheet.

VERY GOOD resources.  I will be using them.  Thank you, I appreciate it.

[doggyfizzle]

For Book #2  A good book about everything there is to know about renting out properties.

Look at arebelspy's journal, specifically his first couple posts.  He's had as much success as anyone on the boards with rental properties and recommended several books for people looking to invest in income properties.

[Heckler]

Money geek has a very basic vlog that starts from square 1


https://youtu.be/xMkzF3bawvY

[Gatzbie]

1.) Mr. Bogle on his most recent webcast at Vanguard states that overall, we will be lucky to get around 4-5% return from a balanced portfolio in the next decade.  (would this be 1-2% after inflation? Not sure if he factored that in already).

See: https://www.youtube.com/watch?v=byNIu6e7Sbs   -----skip to 43:56 to his response to question

See: http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/   --- MMM states that stocks have historically given 10% returns (7% after inflation)

Either way, its less than was has been seen in the past, in fact, the worse Bogle seen in the past 65 years he has been in the business. What does that mean for those who are in are lower 20's just starting out and wanting to retire early?  The only way I see to counteract lower returns would be to make more/save more.  I was considering maybe going 100% real estate to possibly get better returns like the legendary arebelspy, but I'm not sure if that road is for me.


2.) Why do Buffett and Bogle seem to not care for international investing as in, buying international index funds. Buffett is leaving in his will for his trustee to put money 90% S&P 500 index and 10% into short term government bonds. Bogle says that investing in USA companies is good enough for international exposure.  It seems the whole world is against this (Bogleheads, Vanguard's research, posters on here).

[Telecaster]

2.) Why do Buffett and Bogle seem to not care for international investing as in, buying international index funds. Buffett is leaving in his will for his trustee to put money 90% S&P 500 index and 10% into short term government bonds. Bogle says that investing in USA companies is good enough for international exposure.  It seems the whole world is against this (Bogleheads, Vanguard's research, posters on here).

You never know the right way to invest except in hindsight.  Bogle believes that if you invest overseas you run currency risk, plus the USA is typically the best long term anyway.  In addition, most large American companies do business overseas so you get exposure that way.

YMMV.

[kendallf]

The only way I see to counteract lower returns would be to make more/save more.  I was considering maybe going 100% real estate to possibly get better returns like the legendary arebelspy, but I'm not sure if that road is for me.

The more you save and the less you spend, the shorter your working career and the less your returns matter during the accumulation phase.  See MMM's post on the "simple math" and go try some samples in an investment return calculator.  If you're saving 10% of your salary for 40 years, your investment returns make up the bulk of the balance at the end of this long period.  If you're saving 90% of your salary for 10 years, your contributions make up the bulk of the balance.

Of course this doesn't mean you can ignore investment returns.  If you retire early, you have a longer period for your investments to support you.  The good thing is, you don't have to hit it out of the park.  Live simply, have some flexibility in your spending and/or willingness to earn supplemental income, and getting "average" returns will make you rich anyway.

If you want to focus on real estate, you need to have some practical knowledge and willingness to work on the deals, and often the houses themselves.  ARS didn't do hands-on work himself, from what he's said here in the past, but I would say he's atypical in that regard.  Most successful real estate investors have a detailed understanding of their market, and how to pick and maintain the right properties at minimal cost.