Author Topic: Feeling overwhelmed, what do i do?!  (Read 7824 times)

astvilla

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Feeling overwhelmed, what do i do?!
« on: November 11, 2014, 02:46:53 PM »
So been on the forum for a few months now and thanks to everyone for telling me house is not a good idea, I agree for now it's not worth it. But lurking around, I feel pretty overwhelmed as a young person about all the different ways of investing money and which way is best. I've done some research (hours worth) on the web but still feel like I know nothing compared to many of the other posters and other professionals. People say go with index funds (but don't really specify which one), others say invest in dividends and compounding interest is great, others say you should do active trading and buy only when market goes down, others say gold is the best and only thing you should buy, max your Roth IRA but be careful they might change tax laws! max your 401k but I can't touch but I think I've got crappy funds it looks like, etc etc. There's like this tidal wave of information and things to learn it's really hard to keep up and digest it all. While I want to invest, I learned I'm pretty risk averse because from my age, I see less job security, shorter working career, higher costs of living in my generation and the future looks pretty difficult in terms of living and achieving goals+stability. People also mention a correction is coming and a chance for 2015-16 to be bad years, I wouldn't want to put money in when those chances seem pretty high and I potentially get laid off then during the correction with no income stream. Of course no one can predict but just looking at the table and news and stories of people around me, it feels like economy is really bad, market is not indicator of performance. While worrying about my career I have to worry about learning how to invest and all the different things to out look for, it's like another job.

I'm not expecting anyone to do my homework for me but any help in good books/references, sites that make good resources on understanding all these things would be helpful to get a grasp on all the investing nuances. I have some of those Wall St Journal Guide to books but I don't know if they are outdated or not, seems kinda old.


trailrated

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Re: Feeling overwhelmed, what do i do?!
« Reply #1 on: November 11, 2014, 02:58:12 PM »
Don't try to cram through everything in one sitting, but this is what got me started. :)

http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit

Frankies Girl

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wtjbatman

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Re: Feeling overwhelmed, what do i do?!
« Reply #3 on: November 11, 2014, 03:22:11 PM »
Read the Bogleheads Wiki that trailrated linked, then read the links Frankie's Girl posted.

Then come back here with questions after that. And you will have questions, but I guarantee you won't feel quite so clueless or overwhelmed.

matchewed

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Re: Feeling overwhelmed, what do i do?!
« Reply #4 on: November 11, 2014, 03:58:05 PM »
Here are the simple steps.

Step 1. Save a large percentage of your money.

Step 2. Learn (this does not mean watch the news, read books on investing).

Step 3. Invest.

Step 4. You're probably FIRE.

It's silly but the worry over where and what to invest in is an overblown worry.  Hell use a checking account or a money market until you can learn more. Your savings percentage far outweighs your investing strategy if you're shooting for FIRE.

seattlecyclone

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Re: Feeling overwhelmed, what do i do?!
« Reply #5 on: November 11, 2014, 04:16:10 PM »
Yes, don't let the multitude of investing options keep you from saving money in some form. A savings account is fine to start. VTSAX (an index fund from Vanguard that buys basically all of the US stocks, weighted by company size) is another decent place to put a portion of your money while you're figuring things out.

As you learn more, you will come to understand more about the available options and decide on an asset allocation that matches your risk tolerance. At that point you can get more into the details and invest in a few different funds for the long term. Don't sweat this too much while you're learning; keep it simple and just remember to keep saving somewhere.

surfhb

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Re: Feeling overwhelmed, what do i do?!
« Reply #6 on: November 11, 2014, 04:21:37 PM »
There's a single unspoken rule in the world of Wall St. investing:  No one knows! 

That's why index investing is so important- you take what the market decides to give you.   

Read the J Collins and Boglehead sites.    Investing is one of the easiest things to understand and take on yourself.   

justchristine

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Re: Feeling overwhelmed, what do i do?!
« Reply #7 on: November 12, 2014, 04:40:55 AM »
Ok, sounds like you need to break this down to some manageable steps.

1. Save up an emergency fund.  This is for true emergencies...job loss, major medical emergency, etc.  get this up to an amount that you feel comfortable with and keep it in a safe place like a savings account.  It's easier to mentally handle the market swings when you've got money in the bank to cover your ass if the shit hits the fan.

2.  While you are saving up #1, start reading up on the type of retirement accounts (401ks, iras, Roth IRAs, etc.). Learn the pros and cons of each.

3.  Read up on asset allocations.  You need to understand the different asset classes and the risks with each.  Many will recommend an 80/20 mix to start but you really need to feel comfortable with your decision.  Playing with cfiresim.com can help see how different allocations have performed over time.

4. Once you have an emergency fund saved up and you've done your research, you are ready to invest for retirement without worry about needing that money real soon.

soccerluvof4

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Re: Feeling overwhelmed, what do i do?!
« Reply #8 on: November 12, 2014, 04:57:50 AM »
^+1..Take your time. Read collins. and just commit to something and stick with it.  Keep it simple and get started until you know more. At some point you have to make a decision.

ltt

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Re: Feeling overwhelmed, what do i do?!
« Reply #9 on: November 12, 2014, 06:02:30 AM »
When I was young and just started out working, I simply saved money in a bank, bought a few CDs, and then invested through my employer's 401k plan.  Once you build up enough in savings, then you will be on the road to branching out through investing.  Some of the stocks invested in were McDonalds and Coca-Cola--companies that I knew about.  I bought the shares through a DRIP program, where I could put in $100 a month and built up some shares that way.  Then I just read more and some of the funds I invested in I didn't necessarily do a lot of research, because I felt that's why they have the researchers--I just picked some funds that seemed to have good managements.

astvilla

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Re: Feeling overwhelmed, what do i do?!
« Reply #10 on: November 14, 2014, 06:37:50 AM »
thanks for the advice everyone, it seems a lot more organized and clear now. just wondering how long did it take you to get where you are at in terms of investing knowledge? I feel like I'm putting a lot of time in researching and I haven't even scratched the surface, especially when it comes to taxes, etc.

surfhb

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Re: Feeling overwhelmed, what do i do?!
« Reply #11 on: November 14, 2014, 09:29:55 AM »
thanks for the advice everyone, it seems a lot more organized and clear now. just wondering how long did it take you to get where you are at in terms of investing knowledge? I feel like I'm putting a lot of time in researching and I haven't even scratched the surface, especially when it comes to taxes, etc.

About 1 week.....once I read the Boglehead wiki and a book by Larry Swedroe, I finally realized the buying individual stocks and knowing when to buy and sell would most likely be a losers game for me.

My path is now clear:  I've set a monthly budget, built an Emergency Fund and everything else goes to a 401k and ROTH with low cost index funds.   

I was once overwhelmed like yourself but once I realized the time and energy it took to beat the returns of the index, with an 80% chance I would not, it was a ray of sunshine!



opnfld

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Re: Feeling overwhelmed, what do i do?!
« Reply #12 on: November 14, 2014, 12:01:25 PM »
i learned a lot about index fund investing by listening to Paul Merriman's podcast http://paulmerriman.com/podcasts/

I listened for many months before adopting the asset allocation he recommends at http://paulmerriman.com/2014-new-site/the-ultimate-buy-hold-strategy-2014/.    It's basically a 50/50 domestic/international split with a small-cap/value tilt.  He used to have an article with a strategy to create an effective asset allocation over a 10-year period using Vanguard funds, but I think he's taken it down because it can be done much faster now with smaller amounts of money using Vanguard ETFs.

He advocates for a financial advisor (ran his own firm for 30 years, now retired), but provides lots of options for those who don't want to pay an advisor.  His primary pursuit now is educating young investors via free books, articles and podcasts.  I've promoted Paul's work in other posts because I think his approach is clear, flexible, well-researched, easy to absorb (via the podcast) and easy to implement.

If you want to keep it dead-simple, the Bogleheads Three Fund Portfolio http://www.bogleheads.org/wiki/Three-fund_portfolio seems pretty good.  The Bogleheads wiki is another great resource, although I sometimes find it to be information overload.

matchewed

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Re: Feeling overwhelmed, what do i do?!
« Reply #13 on: November 15, 2014, 04:32:31 PM »
thanks for the advice everyone, it seems a lot more organized and clear now. just wondering how long did it take you to get where you are at in terms of investing knowledge? I feel like I'm putting a lot of time in researching and I haven't even scratched the surface, especially when it comes to taxes, etc.

Learning is a never ending process. Don't sweat too much about how long other people took to get there. Learn and focus on some basics like people have pointed out (maximizing savings, broad based index funds). "Master" those (in quotes because you never really master anything) and add if you feel if you need so.

resy

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Re: Feeling overwhelmed, what do i do?!
« Reply #14 on: November 15, 2014, 11:02:07 PM »
OMG I feel exactly the same way, I could have written your post. SO glad you asked, will be folliwing this thread for sure!

hyla

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Re: Feeling overwhelmed, what do i do?!
« Reply #15 on: November 16, 2014, 05:59:45 PM »
Agree with suggestions to check out bogleheads and go with index investing.

Another good, quick read: http://www.etf.com/docs/IfYouCan.pdf

I think the index fund approach (besides being excellent in general) is especially good for new, confused, overwhelmed investors, because you don't need to know everything about the stock market... you just buy index funds and leave your money there for a long time. 

As far as specific funds, the simplest thing to do would be buy an all in one fund from vanguard (either life strategy or target retirement) that matches your risk tolerance.  I currently have my retirement money in vanguard target retirement 2050.

KC1983

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Re: Feeling overwhelmed, what do i do?!
« Reply #16 on: November 16, 2014, 10:42:26 PM »
Easy to be overwhelmed. It'll start to make sense, just look for the common information that you'll keep hearing from trusted sources.

"People say go with index funds (but don't really specify which one)" -- Yes, this is the first key. You want a specific one: VTSAX for your taxable investment account. I also like 10% of my total investments in VBILX (intermediate bond fund), and 10% in VGSLX (REIT Index). The latter two are part of my IRAs, which makes the taxes easier. Mmost of my investment $ is in the taxable account in VTSAX. My IRAs are a mix of VTSAX, VGSLX, and VBILX. The overall total percentages are approx. 80/10/10, which is somewhat aggressive.)

"others say invest in dividends and compounding interest is great" -- Many stocks pay dividends. If you're in a stock index fund, like VTSAX, you're getting dividends. Your bonds are earning interest. You can't really 'invest in dividends,' but dividends are one way that stock funds grow. Follow the above advice and you're investing in dividends and getting compounding interest.

"others say you should do active trading" -- The only people who say that are people who profit from your trading. This is the number two biggest mistake you can make (the number one mistake is to stay overwhelmed and not invest at all). Lots of research shows that most stock professionals cannot even regularly match the market, much less beat the index funds. The typical home investor will be destroyed by active trading.

"buy only when market goes down" -- This is known as market timing, and since you cannot predict when the market will go down, you have to sit on your money waiting, while the market is going up. Then, when it goes down, how do you know if it's really hit bottom? The best strategy is to invest as much as you safely can, as often as you can, as soon as you can. If the market goes down, and you happen to have some extra cash, by all means put it in the market. But I've known people who have been waiting since 2011 for the market to go down, and they've missed a tremendous appreciation in the market. If you worried you'll invest and immediately the market will go down, then invest in several chunks over the next 6 months. But you should be taking a long-term approach, not trying to maximize short-term gains.

"others say gold is the best" -- Gold is a terrible investment. Period. But the 'goldbugs' are an active, loud little group on the internet. They are also wrong. Look at the history of gold prices over the last 40 years. It's ugly.

"max your Roth IRA" -- If you're in a fairly high tax bracket, traditional IRA is better (Uncle Sam essentially contributes $1500 each year to my traditional IRA). But either way, yes, max your IRA out, whether you choose traditional or Roth.

"but be careful they might change tax laws" -- sure, they might, but they're never going to take your money away. Invest as much as you can now, and worry about tax laws when they change.

"max your 401k" -- Yes!. If you have access to a 401(k), which has much higher limits than an IRA, definitely max it out (you only get access to a 401(k) through your employer, and not all jobs offer a 401k). Even crummy 401(k)s are good, and you should be able to find a couple of funds that work for you. Don't fall into the trap of ignoring the good because it's not the best possible. And if you have a 401(k) and then change jobs, roll that 401(k) over to Vanguard in a Rollover IRA, and get those lower fees working for you.

"but I can't touch" -- there are strict limits on taking money early out of an IRA or 401(k), but there are situation when you can without penalty. In any event, your IRA/401k should not be all your investments. You should also have a taxable investment account, and an emergency fund. The tax benefits of 401k/IRA easily outpace the restrictions.

"but I think I've got crappy funds" - crappy funds are better than no funds. The tax benefits are awesome. Just keep it simple, and don't stress over it. I only wish my job offered a 401k with crappy funds.

"from my age, I see less job security, shorter working career, higher costs of living in my generation and the future looks pretty difficult in terms of living and achieving goals+stability." I don't know why you think the cost of living is going up. Inflation has been super low (in my youth it approached 20%), and I currently pay the same for clothing as I did 30 years ago, for example. You may have a shorter working career, you may not, who knows. In any event, unless you plan to live a short life, you should invest for the long run, which means putting the majority of your investments into stocks, and understanding that there will be ups and downs.

"People also mention a correction is coming and a chance for 2015-16 to be bad years" -- Look around the internet. You can find solid, well written articles saying 2011 would be terrible, or that a correction was likely inn 2012, or 2013, and then surely disaster would hit in 2014. 2015 or 2016 may be bad. They may not. The market might drop 25%, and then 9 months later be slightly up for the year. You can't control that. You CAN control saving lots, and building an emergency fund, and fully funding your 401k or IRA, and building your long term investments.

"Just looking at the table and news and stories of people around me, it feels like economy is really bad" -- Same as it ever was. MMM has talked often about how much better life is when you're optimistic and mostly ignore the news. He's right. Or you can read the news from 5 years ago, and 10, and 20 and 60 years ago, and see that there are always bad signs around the corner, and the economy seems to be faltering, and on and on.

"I have to worry about learning how to invest and all the different things to out look for, it's like another job." -- Reread the first thing I wrote above. You'll see very similar advice from Jim Collins and MMM and John Bogel and William Bernstein (wonderful writer about investing) and others. Subtle details may change, but in the long run it's probably minutia. You're making this more stressful than it needs to be. If you're really risk averse, change the 80/10/10 percentages I recommend to 60% VTSAX and 30% bond index fund and 10% VGSLX. Just be sure to rebalance once a year or so. Or just invest in a target retirement account and never check it. Start shoving that money into Vanguard accounts, then try to forget about it. Stop listening to anyone talking about the economy on TV, keep saving like crazy, and I promise you that when you look back in 6 or 8 years you'll start to feel really good about this stuff.

Dicey

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Re: Feeling overwhelmed, what do i do?!
« Reply #17 on: November 16, 2014, 11:02:42 PM »
Easy to be overwhelmed. It'll start to make sense, just look for the common information that you'll keep hearing from trusted sources.

"People say go with index funds (but don't really specify which one)" -- Yes, this is the first key. You want a specific one: VTSAX for your taxable investment account. I also like 10% of my total investments in VBILX (intermediate bond fund), and 10% in VGSLX (REIT Index). The latter two are part of my IRAs, which makes the taxes easier. Mmost of my investment $ is in the taxable account in VTSAX. My IRAs are a mix of VTSAX, VGSLX, and VBILX. The overall total percentages are approx. 80/10/10, which is somewhat aggressive.)

"others say invest in dividends and compounding interest is great" -- Many stocks pay dividends. If you're in a stock index fund, like VTSAX, you're getting dividends. Your bonds are earning interest. You can't really 'invest in dividends,' but dividends are one way that stock funds grow. Follow the above advice and you're investing in dividends and getting compounding interest.

"others say you should do active trading" -- The only people who say that are people who profit from your trading. This is the number two biggest mistake you can make (the number one mistake is to stay overwhelmed and not invest at all). Lots of research shows that most stock professionals cannot even regularly match the market, much less beat the index funds. The typical home investor will be destroyed by active trading.

"buy only when market goes down" -- This is known as market timing, and since you cannot predict when the market will go down, you have to sit on your money waiting, while the market is going up. Then, when it goes down, how do you know if it's really hit bottom? The best strategy is to invest as much as you safely can, as often as you can, as soon as you can. If the market goes down, and you happen to have some extra cash, by all means put it in the market. But I've known people who have been waiting since 2011 for the market to go down, and they've missed a tremendous appreciation in the market. If you worried you'll invest and immediately the market will go down, then invest in several chunks over the next 6 months. But you should be taking a long-term approach, not trying to maximize short-term gains.

"others say gold is the best" -- Gold is a terrible investment. Period. But the 'goldbugs' are an active, loud little group on the internet. They are also wrong. Look at the history of gold prices over the last 40 years. It's ugly.

"max your Roth IRA" -- If you're in a fairly high tax bracket, traditional IRA is better (Uncle Sam essentially contributes $1500 each year to my traditional IRA). But either way, yes, max your IRA out, whether you choose traditional or Roth.

"but be careful they might change tax laws" -- sure, they might, but they're never going to take your money away. Invest as much as you can now, and worry about tax laws when they change.

"max your 401k" -- Yes!. If you have access to a 401(k), which has much higher limits than an IRA, definitely max it out (you only get access to a 401(k) through your employer, and not all jobs offer a 401k). Even crummy 401(k)s are good, and you should be able to find a couple of funds that work for you. Don't fall into the trap of ignoring the good because it's not the best possible. And if you have a 401(k) and then change jobs, roll that 401(k) over to Vanguard in a Rollover IRA, and get those lower fees working for you.

"but I can't touch" -- there are strict limits on taking money early out of an IRA or 401(k), but there are situation when you can without penalty. In any event, your IRA/401k should not be all your investments. You should also have a taxable investment account, and an emergency fund. The tax benefits of 401k/IRA easily outpace the restrictions.

"but I think I've got crappy funds" - crappy funds are better than no funds. The tax benefits are awesome. Just keep it simple, and don't stress over it. I only wish my job offered a 401k with crappy funds.

"from my age, I see less job security, shorter working career, higher costs of living in my generation and the future looks pretty difficult in terms of living and achieving goals+stability." I don't know why you think the cost of living is going up. Inflation has been super low (in my youth it approached 20%), and I currently pay the same for clothing as I did 30 years ago, for example. You may have a shorter working career, you may not, who knows. In any event, unless you plan to live a short life, you should invest for the long run, which means putting the majority of your investments into stocks, and understanding that there will be ups and downs.

"People also mention a correction is coming and a chance for 2015-16 to be bad years" -- Look around the internet. You can find solid, well written articles saying 2011 would be terrible, or that a correction was likely inn 2012, or 2013, and then surely disaster would hit in 2014. 2015 or 2016 may be bad. They may not. The market might drop 25%, and then 9 months later be slightly up for the year. You can't control that. You CAN control saving lots, and building an emergency fund, and fully funding your 401k or IRA, and building your long term investments.

"Just looking at the table and news and stories of people around me, it feels like economy is really bad" -- Same as it ever was. MMM has talked often about how much better life is when you're optimistic and mostly ignore the news. He's right. Or you can read the news from 5 years ago, and 10, and 20 and 60 years ago, and see that there are always bad signs around the corner, and the economy seems to be faltering, and on and on.

"I have to worry about learning how to invest and all the different things to out look for, it's like another job." -- Reread the first thing I wrote above. You'll see very similar advice from Jim Collins and MMM and John Bogel and William Bernstein (wonderful writer about investing) and others. Subtle details may change, but in the long run it's probably minutia. You're making this more stressful than it needs to be. If you're really risk averse, change the 80/10/10 percentages I recommend to 60% VTSAX and 30% bond index fund and 10% VGSLX. Just be sure to rebalance once a year or so. Or just invest in a target retirement account and never check it. Start shoving that money into Vanguard accounts, then try to forget about it. Stop listening to anyone talking about the economy on TV, keep saving like crazy, and I promise you that when you look back in 6 or 8 years you'll start to feel really good about this stuff.
Kudos to you KC1983! Brilliant response. No, fucking brilliant response!

astvilla

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Re: Feeling overwhelmed, what do i do?!
« Reply #18 on: November 17, 2014, 11:44:54 PM »
Easy to be overwhelmed. It'll start to make sense, just look for the common information that you'll keep hearing from trusted sources.

"People say go with index funds (but don't really specify which one)" -- Yes, this is the first key. You want a specific one: VTSAX for your taxable investment account. I also like 10% of my total investments in VBILX (intermediate bond fund), and 10% in VGSLX (REIT Index). The latter two are part of my IRAs, which makes the taxes easier. Mmost of my investment $ is in the taxable account in VTSAX. My IRAs are a mix of VTSAX, VGSLX, and VBILX. The overall total percentages are approx. 80/10/10, which is somewhat aggressive.)

"others say invest in dividends and compounding interest is great" -- Many stocks pay dividends. If you're in a stock index fund, like VTSAX, you're getting dividends. Your bonds are earning interest. You can't really 'invest in dividends,' but dividends are one way that stock funds grow. Follow the above advice and you're investing in dividends and getting compounding interest.

"others say you should do active trading" -- The only people who say that are people who profit from your trading. This is the number two biggest mistake you can make (the number one mistake is to stay overwhelmed and not invest at all). Lots of research shows that most stock professionals cannot even regularly match the market, much less beat the index funds. The typical home investor will be destroyed by active trading.

"buy only when market goes down" -- This is known as market timing, and since you cannot predict when the market will go down, you have to sit on your money waiting, while the market is going up. Then, when it goes down, how do you know if it's really hit bottom? The best strategy is to invest as much as you safely can, as often as you can, as soon as you can. If the market goes down, and you happen to have some extra cash, by all means put it in the market. But I've known people who have been waiting since 2011 for the market to go down, and they've missed a tremendous appreciation in the market. If you worried you'll invest and immediately the market will go down, then invest in several chunks over the next 6 months. But you should be taking a long-term approach, not trying to maximize short-term gains.

"others say gold is the best" -- Gold is a terrible investment. Period. But the 'goldbugs' are an active, loud little group on the internet. They are also wrong. Look at the history of gold prices over the last 40 years. It's ugly.

"max your Roth IRA" -- If you're in a fairly high tax bracket, traditional IRA is better (Uncle Sam essentially contributes $1500 each year to my traditional IRA). But either way, yes, max your IRA out, whether you choose traditional or Roth.

"but be careful they might change tax laws" -- sure, they might, but they're never going to take your money away. Invest as much as you can now, and worry about tax laws when they change.

"max your 401k" -- Yes!. If you have access to a 401(k), which has much higher limits than an IRA, definitely max it out (you only get access to a 401(k) through your employer, and not all jobs offer a 401k). Even crummy 401(k)s are good, and you should be able to find a couple of funds that work for you. Don't fall into the trap of ignoring the good because it's not the best possible. And if you have a 401(k) and then change jobs, roll that 401(k) over to Vanguard in a Rollover IRA, and get those lower fees working for you.

"but I can't touch" -- there are strict limits on taking money early out of an IRA or 401(k), but there are situation when you can without penalty. In any event, your IRA/401k should not be all your investments. You should also have a taxable investment account, and an emergency fund. The tax benefits of 401k/IRA easily outpace the restrictions.

"but I think I've got crappy funds" - crappy funds are better than no funds. The tax benefits are awesome. Just keep it simple, and don't stress over it. I only wish my job offered a 401k with crappy funds.

"from my age, I see less job security, shorter working career, higher costs of living in my generation and the future looks pretty difficult in terms of living and achieving goals+stability." I don't know why you think the cost of living is going up. Inflation has been super low (in my youth it approached 20%), and I currently pay the same for clothing as I did 30 years ago, for example. You may have a shorter working career, you may not, who knows. In any event, unless you plan to live a short life, you should invest for the long run, which means putting the majority of your investments into stocks, and understanding that there will be ups and downs.

"People also mention a correction is coming and a chance for 2015-16 to be bad years" -- Look around the internet. You can find solid, well written articles saying 2011 would be terrible, or that a correction was likely inn 2012, or 2013, and then surely disaster would hit in 2014. 2015 or 2016 may be bad. They may not. The market might drop 25%, and then 9 months later be slightly up for the year. You can't control that. You CAN control saving lots, and building an emergency fund, and fully funding your 401k or IRA, and building your long term investments.

"Just looking at the table and news and stories of people around me, it feels like economy is really bad" -- Same as it ever was. MMM has talked often about how much better life is when you're optimistic and mostly ignore the news. He's right. Or you can read the news from 5 years ago, and 10, and 20 and 60 years ago, and see that there are always bad signs around the corner, and the economy seems to be faltering, and on and on.

"I have to worry about learning how to invest and all the different things to out look for, it's like another job." -- Reread the first thing I wrote above. You'll see very similar advice from Jim Collins and MMM and John Bogel and William Bernstein (wonderful writer about investing) and others. Subtle details may change, but in the long run it's probably minutia. You're making this more stressful than it needs to be. If you're really risk averse, change the 80/10/10 percentages I recommend to 60% VTSAX and 30% bond index fund and 10% VGSLX. Just be sure to rebalance once a year or so. Or just invest in a target retirement account and never check it. Start shoving that money into Vanguard accounts, then try to forget about it. Stop listening to anyone talking about the economy on TV, keep saving like crazy, and I promise you that when you look back in 6 or 8 years you'll start to feel really good about this stuff.

wow this really helped to calm my anxiety. brilliant advice, i hope majority of people agree with this. i agree with all but the inflation part. by inflation i'm thinking about the costs of education, raising kids, buying a home, car, all these expenses. of course i'd be smart and practical and not want the newest, latest, or best but education costs for me and future generation and healthcare costs are way above rate of inflation w/no end in sight. if nothing changes, education will be $500k for my kid's college, maybe, but who knows what's gonna happen in the future?

but where does this confidence in seeing the long term come from in most people in all these forums? there seems to be this incredibly strong faith that no matter what happens, you'll win with this strategy. if everyone followed this advice, doesn't there still have to be losers? what's stopping the s&p/djia/nasdaq from looking like the nikkei 225 and i mean like since the 80s till now, not this recent recession? i still agree with what everyone says but i feel like i'm the kind of person that needs real evidence and scientific proof (citations, etc) to be truly convinced we're not headed for huge downturn or limping economy. and maybe studies won't help b/c as others say, it's pointless to predict the economy and no one knows what will happen because we never had QE infinity or low interest rates for such a long time.

on another note, this sounds stupid but what's a taxable investment account? that sounds bad because it's taxable...meaning it's taxed? why would you want to put money there?


KC1983

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Re: Feeling overwhelmed, what do i do?!
« Reply #19 on: November 18, 2014, 07:50:07 AM »
Thanks for the kind words, fewaopi and Daine.

Fewaopi, I really, really do not think your children's college will be anywhere close to $500k, unless you pay full sticker price, which pretty much only foreign students pay. My wife (who got a full ride as an undergraduate, at the expense of going to a school that wasn't close to her first choice) recently went back to school to become a programmer. While she was taking community college classes to prep for qualifying for CS Masters programs, she was asked to start teaching some of the lower level computer classes at the college. Then, when she was ready to apply for the masters, she got a good job as a programmer/developer. Total cost of her BA and computer science training: less than $1000. It took a lot of work on her part to figure out what she wanted, and where to get it, but that should be part of every college student's path.

"if everyone followed this advice, doesn't there still have to be losers? " -- the economy is not a zero sum game. This is why the west has seen spectacular growth, so that even the poorest American today has it better than the pharaohs and kings of old. We can get hung up on income inequality, but as MMM writes, better to tend your own garden and make the most of your own life, because in the big picture we (in north America) are all luckier than 99.9% of the people who have ever lived on earth.

A taxable investment account is NOT a bad thing. It's any money you have invested that is not in a retirement vehicle (IRAs/401k/403b/etc). The great thing about taxable investment accounts is that the taxes you pay if you invest for the long term are less than what you pay on your salary or short term investments. The key is the long term part. It's complicated, but basically if your VTSAX investment account goes up in value, through increased valuation of the underlying companies you hold stock in, and through all those dividends coming in, then you will be taxed at the long term capital gains rate. That rate is much lower than the short term rate. Bond funds pay interest, which is always short term, so are taxed at higher rates (there are tax advantaged bond funds, but they generally earn less).

Bottom line is, there is only so much money we can put in our retirement (tax deferred) accounts, so if we're big savers and investors, we HAVE to invest in taxable accounts. The key is to realize which kinds of investments are best in those taxable accounts. The simple answer is a large stock index fund, like VTSAX.

sb_NoVA

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Re: Feeling overwhelmed, what do i do?!
« Reply #20 on: November 18, 2014, 07:59:55 AM »

I am intrigued by your selection of VBILX over VTBLX.  VBILX seems to have performed much better than VTBLX.  I'm 100% stocks and don't know anything about bonds.  Can you share your thought process on picking VBILX and how/why do you think it's a better move than VTBLX.

Thanks.

Easy to be overwhelmed. It'll start to make sense, just look for the common information that you'll keep hearing from trusted sources.

"People say go with index funds (but don't really specify which one)" -- Yes, this is the first key. You want a specific one: VTSAX for your taxable investment account. I also like 10% of my total investments in VBILX (intermediate bond fund), and 10% in VGSLX (REIT Index). The latter two are part of my IRAs, which makes the taxes easier. Mmost of my investment $ is in the taxable account in VTSAX. My IRAs are a mix of VTSAX, VGSLX, and VBILX. The overall total percentages are approx. 80/10/10, which is somewhat aggressive.)

"others say invest in dividends and compounding interest is great" -- Many stocks pay dividends. If you're in a stock index fund, like VTSAX, you're getting dividends. Your bonds are earning interest. You can't really 'invest in dividends,' but dividends are one way that stock funds grow. Follow the above advice and you're investing in dividends and getting compounding interest.

"others say you should do active trading" -- The only people who say that are people who profit from your trading. This is the number two biggest mistake you can make (the number one mistake is to stay overwhelmed and not invest at all). Lots of research shows that most stock professionals cannot even regularly match the market, much less beat the index funds. The typical home investor will be destroyed by active trading.

"buy only when market goes down" -- This is known as market timing, and since you cannot predict when the market will go down, you have to sit on your money waiting, while the market is going up. Then, when it goes down, how do you know if it's really hit bottom? The best strategy is to invest as much as you safely can, as often as you can, as soon as you can. If the market goes down, and you happen to have some extra cash, by all means put it in the market. But I've known people who have been waiting since 2011 for the market to go down, and they've missed a tremendous appreciation in the market. If you worried you'll invest and immediately the market will go down, then invest in several chunks over the next 6 months. But you should be taking a long-term approach, not trying to maximize short-term gains.

"others say gold is the best" -- Gold is a terrible investment. Period. But the 'goldbugs' are an active, loud little group on the internet. They are also wrong. Look at the history of gold prices over the last 40 years. It's ugly.

"max your Roth IRA" -- If you're in a fairly high tax bracket, traditional IRA is better (Uncle Sam essentially contributes $1500 each year to my traditional IRA). But either way, yes, max your IRA out, whether you choose traditional or Roth.

"but be careful they might change tax laws" -- sure, they might, but they're never going to take your money away. Invest as much as you can now, and worry about tax laws when they change.

"max your 401k" -- Yes!. If you have access to a 401(k), which has much higher limits than an IRA, definitely max it out (you only get access to a 401(k) through your employer, and not all jobs offer a 401k). Even crummy 401(k)s are good, and you should be able to find a couple of funds that work for you. Don't fall into the trap of ignoring the good because it's not the best possible. And if you have a 401(k) and then change jobs, roll that 401(k) over to Vanguard in a Rollover IRA, and get those lower fees working for you.

"but I can't touch" -- there are strict limits on taking money early out of an IRA or 401(k), but there are situation when you can without penalty. In any event, your IRA/401k should not be all your investments. You should also have a taxable investment account, and an emergency fund. The tax benefits of 401k/IRA easily outpace the restrictions.

"but I think I've got crappy funds" - crappy funds are better than no funds. The tax benefits are awesome. Just keep it simple, and don't stress over it. I only wish my job offered a 401k with crappy funds.

"from my age, I see less job security, shorter working career, higher costs of living in my generation and the future looks pretty difficult in terms of living and achieving goals+stability." I don't know why you think the cost of living is going up. Inflation has been super low (in my youth it approached 20%), and I currently pay the same for clothing as I did 30 years ago, for example. You may have a shorter working career, you may not, who knows. In any event, unless you plan to live a short life, you should invest for the long run, which means putting the majority of your investments into stocks, and understanding that there will be ups and downs.

"People also mention a correction is coming and a chance for 2015-16 to be bad years" -- Look around the internet. You can find solid, well written articles saying 2011 would be terrible, or that a correction was likely inn 2012, or 2013, and then surely disaster would hit in 2014. 2015 or 2016 may be bad. They may not. The market might drop 25%, and then 9 months later be slightly up for the year. You can't control that. You CAN control saving lots, and building an emergency fund, and fully funding your 401k or IRA, and building your long term investments.

"Just looking at the table and news and stories of people around me, it feels like economy is really bad" -- Same as it ever was. MMM has talked often about how much better life is when you're optimistic and mostly ignore the news. He's right. Or you can read the news from 5 years ago, and 10, and 20 and 60 years ago, and see that there are always bad signs around the corner, and the economy seems to be faltering, and on and on.

"I have to worry about learning how to invest and all the different things to out look for, it's like another job." -- Reread the first thing I wrote above. You'll see very similar advice from Jim Collins and MMM and John Bogel and William Bernstein (wonderful writer about investing) and others. Subtle details may change, but in the long run it's probably minutia. You're making this more stressful than it needs to be. If you're really risk averse, change the 80/10/10 percentages I recommend to 60% VTSAX and 30% bond index fund and 10% VGSLX. Just be sure to rebalance once a year or so. Or just invest in a target retirement account and never check it. Start shoving that money into Vanguard accounts, then try to forget about it. Stop listening to anyone talking about the economy on TV, keep saving like crazy, and I promise you that when you look back in 6 or 8 years you'll start to feel really good about this stuff.

randommadness

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Re: Feeling overwhelmed, what do i do?!
« Reply #21 on: November 18, 2014, 08:17:57 AM »

A taxable investment account is NOT a bad thing. It's any money you have invested that is not in a retirement vehicle (IRAs/401k/403b/etc). The great thing about taxable investment accounts is that the taxes you pay if you invest for the long term are less than what you pay on your salary or short term investments. The key is the long term part. It's complicated, but basically if your VTSAX investment account goes up in value, through increased valuation of the underlying companies you hold stock in, and through all those dividends coming in, then you will be taxed at the long term capital gains rate. That rate is much lower than the short term rate. Bond funds pay interest, which is always short term, so are taxed at higher rates (there are tax advantaged bond funds, but they generally earn less).

Bottom line is, there is only so much money we can put in our retirement (tax deferred) accounts, so if we're big savers and investors, we HAVE to invest in taxable accounts. The key is to realize which kinds of investments are best in those taxable accounts. The simple answer is a large stock index fund, like VTSAX.

Remember this. A lot of coworkers and friends I talk to stop investing once they hit the limits on their 401k, IRA's, etc., with the mindset of "I don't have anywhere else to put the money," not quite realizing they can invest in a standard brokerage account.

HOPEFULLY you're saving (and I'm not, but wish I was =D ) and investing so much that you HAVE to invest in a taxable account because you've maxed the others.

astvilla

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Re: Feeling overwhelmed, what do i do?!
« Reply #22 on: November 18, 2014, 08:35:26 AM »
Thanks for the kind words, fewaopi and Daine.

Fewaopi, I really, really do not think your children's college will be anywhere close to $500k, unless you pay full sticker price, which pretty much only foreign students pay. My wife (who got a full ride as an undergraduate, at the expense of going to a school that wasn't close to her first choice) recently went back to school to become a programmer. While she was taking community college classes to prep for qualifying for CS Masters programs, she was asked to start teaching some of the lower level computer classes at the college. Then, when she was ready to apply for the masters, she got a good job as a programmer/developer. Total cost of her BA and computer science training: less than $1000. It took a lot of work on her part to figure out what she wanted, and where to get it, but that should be part of every college student's path.

"if everyone followed this advice, doesn't there still have to be losers? " -- the economy is not a zero sum game. This is why the west has seen spectacular growth, so that even the poorest American today has it better than the pharaohs and kings of old. We can get hung up on income inequality, but as MMM writes, better to tend your own garden and make the most of your own life, because in the big picture we (in north America) are all luckier than 99.9% of the people who have ever lived on earth.

A taxable investment account is NOT a bad thing. It's any money you have invested that is not in a retirement vehicle (IRAs/401k/403b/etc). The great thing about taxable investment accounts is that the taxes you pay if you invest for the long term are less than what you pay on your salary or short term investments. The key is the long term part. It's complicated, but basically if your VTSAX investment account goes up in value, through increased valuation of the underlying companies you hold stock in, and through all those dividends coming in, then you will be taxed at the long term capital gains rate. That rate is much lower than the short term rate. Bond funds pay interest, which is always short term, so are taxed at higher rates (there are tax advantaged bond funds, but they generally earn less).

Bottom line is, there is only so much money we can put in our retirement (tax deferred) accounts, so if we're big savers and investors, we HAVE to invest in taxable accounts. The key is to realize which kinds of investments are best in those taxable accounts. The simple answer is a large stock index fund, like VTSAX.

hmm this makes sense. you do a lot in lowering anxiety, better than many medications tbh. i guess it's important to have perspective and to focus on making the most of our lives and not just all about $$. and value what we have, it's a lot better than what it used to be.

ChelseaBlair

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Re: Feeling overwhelmed, what do i do?!
« Reply #23 on: November 18, 2014, 10:12:50 PM »
I'm new to this too, and as a fellow newbie, I'd recommend taking a (small) plunge once you've done your research. You might not ever feel "fully comfortable" or like you know everything (there is always more to learn). Of course, follow MMM steps (ex: you don't invest in taxable accounts when you have high interest debt).
After you have a basic understanding/overview, if you still have some cash lying around (after paying off any high interest debts, having an emergency fund-esp if you're worried about job security, maxing out your 401k-or at least putting what you get in an employer match), I'd recommend starting at Vanguard low-cost index funds. I had a lot of cash lying around in non-interest (or low interest) savings/checkings accounts for the last few years and I was SO nervous to open my first Vanguard account.
Anyway, finally getting on it this year makes me upset that I waited so long to take action, but completely happy with what I've done now that my money is working for me. I'm young enough (and it sounds like you may be too), that if there is a market downturn in the near future, I feel confident my funds can recover before I retire. I personally didn't feel comfortable throwing all of my money in at once, so I've just been doing increments periodically. I realize this isn't maximizing my return, but I felt similar to you that this can be overwhelming when you first jump in and this helped me ease into it.

KC1983

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Re: Feeling overwhelmed, what do i do?!
« Reply #24 on: November 18, 2014, 10:18:39 PM »
sb-NoVA, you're correct in suggesting VTBLX. That's what I should have suggested to fewaopi as the best candidate for a one-stop-shopping, long-term bond index fund. My reasoning for VBILX was as follows: like you, I was almost totally in stocks until last December, when I decided I should follow the advice of people smarter than me and put a small portion of my total investments into bonds [studies show that a portfolio of 80-90% stocks and 10-20% bonds, with annual rebalancing, is pretty optimal over long periods of time]. My research suggested that long-term bonds generally do badly in a climate of rising interest rates, which everyone has been the fed to trigger for the last year or so. And short-term bonds tend to have very low returns. So I thought an intermediate-term bond fund would be the best bet, at least until interest rates get bumped up. In fact, over the last 10 months VBILX has indeed done slightly better than VTBLX. But for long-term investing, VTBLX is probably the better default choice.

sb_NoVA

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Re: Feeling overwhelmed, what do i do?!
« Reply #25 on: November 19, 2014, 08:41:59 AM »
KC1983,
Makes sense to me now.  Thanks for responding.