Hi all,
Finally saved enough to buy a house (a year ago). Made a wise job move 6 months ago (doubled income). Just set up (and maxing out): 401K, Roth IRA and HSA.
Congrats!
Looking forward I’ll have approx $100K a year to invest (post 401K, Roth IRA and HSA)
A few beginners Q…
1. Stocks vs housing: My original plan was to buy a rental property ASAP but in the North East (where I live) I can get nowhere near the 1% rule. Am I better going the stock market route? (at least to get my investing ball rolling?)
Obviously people will have differing opinions on this, and NO rule is applicable to every property in every region of the country. But I've been reading on real estate for a few years now and I'm fairly certain that for most of the metro areas in the Northeast (I'm in NYC, but I've looked in the surrounding regions), the 1% rule doesn't work - you won't find property meeting that criteria in highly populated places in the northeast. Furthermore, your risk is magnified because the cost of the average property in the northeast is higher; to get on the property ladder costs you $150k and up, usually, at a minimum. Oftentimes - more!
Your choices are:
- go the real estate route route and pursue a different strategy other than "buy houses that roughly meet the 1-2% rule of thumb". John T. Reed is a pretty good source on some of these alternative strategies, but be advised that none are as simple as the 1-2% rule. Ignore how bad his site looks or his doomsday streak - he's got solid info on real estate investing.
- Invest long-distance in properties that meet that 1-2% rule
- Stick to the stock market until you've got more capital.
2. What is a good beginner’s book on investing? I have a MBA and understand the basic principle of the stock market and company valuations. But how do I put this into practice?
If you mean on overall portfolio management from a "what consistently works and is simple" perspective, I'd recommend the Bogleheads forum. They'll stress asset allocation, diversification, low costs, asset location, and tax efficiency. They will explain these concepts really well. Importantly,
you will not fuck yourself following this path. You'll do average for your risk profile, which will NOT put you in the 50th percentile of investors. It will put you in the upper quartile of the investing public, I would guess, because most investors don't earn the risk-adjusted return they deserve - they screw up some key concept (low fees, proper asset allocation, they try to market time, etc).
If you mean "I want to try my hand at actively managing my stock portfolio", then I'd say: go for it.
But there's a right and a wrong way to do this. I'd say carve out a piece of your equity portfolio (say, 10%) and try your hand at it. I would add a bunch of caveats and "how do to this without blowing yourself up" type guidelines, but I'm not even sure that this is what you meant?
If you mean "I want to try and actively manage some of my equities because I think I can do better / think it would be interesting / think it would be a lot of fun", then tell me that and I'll recommend some guidelines for how to attempt this in a way where any screwups will be minimized, and you can actually track if you're doing a good job or not over the long-haul.3. What is the best way to invest the $100K?
Investing in stocks: Reading about the stock market makes me nervous that we are at a high and it will crash shortly. Do I want to lose a chuck of that $100K?
If you're really nervous about investing "at current levels", your best choices are:
1) Pick a more conservative asset allocation for now for this $100,000, and get investing. You can always up your equity exposure later.
2) Dollar cost average into the asset allocation you want. For example, if you think you're a 60% stock / 40% bond investor, you could buy $20,000 of
Vanguard LifeStrategy Moderate Growth (60/40 allocation) every quarter from now until your long-term moneys is all invested.
Hopefully that helps. Lemme know if you were serious about the "I want to try my hand at actively managing my portfolio" question and I'll recommend some books and guidelines so you don't blow yourself up, hopefully.
