Author Topic: Getting started with investing  (Read 2716 times)

SpiffyEh

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Getting started with investing
« on: April 29, 2018, 06:01:26 PM »
I'm new to the world of investing. I've been reading through a bunch of the articles on the site and I'm interested in getting started with investing in some of those vanguard funds but I'm still confused as to what exactly I should invest in. I've read about re-balancing each year and everything but aren't there tax implications of doing that? This is for post tax investments (I already have my 401k maxed out). I like the idea of the dividend options and just re-investing those over time but I'm a little nervous since I've never done anything like this before.

Any help or guidance would be very much appreciated!

Telecaster

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Re: Getting started with investing
« Reply #1 on: April 29, 2018, 06:04:03 PM »
Invest in VTSAX right now. That will do 95% of everything you need.  Then spend the next couple years refining your investment strategy. 

GOFU

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Re: Getting started with investing
« Reply #2 on: April 29, 2018, 06:50:46 PM »
If your 401(k) is maxed out then you are not new to investing. You are already in the game. What is your 401(k) money invested in?
What is your time horizon?

If you really want help you should post a case study and provide more information.

SpiffyEh

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Re: Getting started with investing
« Reply #3 on: April 29, 2018, 07:22:44 PM »
Well, I say new in the sense that I'm actually trying to actively do something. My 401k through work is with vanguard and I just set it up to be in a 2055 retirement account when I initially started putting money into it 5 years ago.

I already save probably 75% of my income but it's been sitting in a bank account which I realize is not the best thing to do and hasn't benefitted me much (wish I had know that years ago). I'm hoping maybe in the next 5-10 years I can get together a good amount to be semi retired and live off of some of the gains from the investments. Maybe not full retirement since I do want to work a little bit to keep myself occupied. I'll look into this case study thing and trying to get that info together.

Bicycle_B

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Re: Getting started with investing
« Reply #4 on: April 29, 2018, 08:22:24 PM »
Excellent!

In the meantime, do the VTSAX thing with as much of your cash as you can stand.

I would hold back a couple months' worth of cash expenses from that, but that's the amount I could stand.  Your high savings rate gives you great safety. 

As you learn more, your strategy will get more sophisticated.  But you're already doing great.  Iterate the learning, and the coming back to ask questions - you'll soon know enough to tweak the fine points.  You'll have all of this squared away well prior to your retirement.

GOFU

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Re: Getting started with investing
« Reply #5 on: April 29, 2018, 08:47:56 PM »
75% savings rate is awesome. Get it invested. As others have mentioned VTSAX with auto-reinvest of dividends is a good way to start with investable funds you have piled up. The bank account is worse than simply not benefitting you very much, keeping money in a bank account right now is actually doing you harm as inflation erodes the spending power of those dollars.

You are correct that rebalancing a taxable account could cause taxable events if you have to sell assets. But if you keep your portfolio simple, and you maintain a long-term approach, that is a minor concern. You can maintain the balance you want over time with new money you are saving and investing.

You may want to take a day or two to read some basics on investing. The Mr. Money Mustache blog is good for personal finance, i.e., lessons and encouragement on how to not piss your money away, but for the investing side www.bogleheads.org has a more focused and concise beginner series that many have found quite helpful for the early broad strokes. https://www.bogleheads.org/wiki/Getting_started

SpiffyEh

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Re: Getting started with investing
« Reply #6 on: April 29, 2018, 09:32:55 PM »
Hereís some more information (based on someone elseís post so hopefully I didnít miss anything).

Salary: 90k/year
Debt: None
401k: Maxed with all being put in a 2055 vanguard retirement plan
Roth IRA: Just started putting money into this too - going to put $5500 for the year (didnít realize it would be advantageous this year when I started reading about it)
Liquidity: I have about 115k in a bank account which I would like to invest some of (maybe 50k?) and use the remainder as a downpayment on a house in about a year from now.
Expenses: After all of my expenses I have about 4k a month that I can invest for now while Iím living with family (which will probably change in about a year)

In terms of the money I want to keep around for a downpayment - is there a safe way to get some kind of short term benefit from that?

Bicycle_B: Thank you for the suggestion, that makes it a bit easier to at least get my foot in the door more than just the 401k.

GOFU: Thanks for the site recommendations! Iíll be sure to go read some more about investing.  Iím trying to avoid making too many mistakes and causing tax implications but I also want to be somewhat safe in my investments.

Freedomin5

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Re: Getting started with investing
« Reply #7 on: April 30, 2018, 12:26:52 AM »
Read JLCollins investing series.

http://jlcollinsnh.com/stock-series/

Then come back with any additional questions.

h82goslw

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Re: Getting started with investing
« Reply #8 on: May 02, 2018, 07:29:06 AM »
As mentioned, avoid the broker.  If you really want someone managing your money, use Vanguard Personal Advisor services for a 30 basis points fee,canít beat it.   
Otherwise just do a 3 fund portfolio as espoused on Bogleheads.org or stick with the target date fund youíre already doing.

As for house down payment funds, leave it in a money market or savings account for zero volatility. 

Youíre ahead of the vast majority of Americans and doing great.  Keep doing what youíre doing.

MustacheAndaHalf

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Re: Getting started with investing
« Reply #9 on: May 02, 2018, 09:54:22 AM »
SpiffyEh - The advice for starting investing is different from the advice for saving for a down payment.  The down payment is presumably needed soon - a few years from now.  Retirement money can grow for decades, and shrug off most market corrections.

If you decide to invest the money you're saving for a down payment, be prepared to delay your purchase if the market corrects.  Along those same lines, as you accumulate almost the amount you need, shift it to mostly bonds or cash.  For example, you might risk 50/50 stocks and bonds with your down payment, but once you're 90% done you might shift to 90% bonds/cash.  When you're ready to shop for a house, move it all into cash.

If you're sold on using Vanguard, then VTSAX (Vanguard Total Stock Market) is a good choice.  Or rather, it's choosing everything instead of making a specific choice - the entire U.S. stock market.  But as long as you're saving for a down payment and haven't saved enough, you want a lot of lower risk bonds (like Vanguard Total Bond Market).

You can also read up on the "3 fund portfolio" that uses of Total US stock, Total international stock, and Total bond market.

FrugalToque

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Re: Getting started with investing
« Reply #10 on: May 02, 2018, 10:37:39 AM »
(ETA: There was a spam post added into this thread, and several people replied to it, quoting the link the spammer provided)

Hey guys, do us a favour?

When you see a spam link posted:
a) report it
b) don't reply to it
c) if you really, really want to reply to it in order to make a super-witty, condescending comment, at least delete the link.
Otherwise, I have to go through and clean up a whole bunch of posts.

Thanks a buncherooni,
Toque.
« Last Edit: May 02, 2018, 10:52:31 AM by FrugalToque »

SpiffyEh

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Re: Getting started with investing
« Reply #11 on: May 03, 2018, 07:39:30 AM »
As mentioned, avoid the broker.  If you really want someone managing your money, use Vanguard Personal Advisor services for a 30 basis points fee,canít beat it.   
Otherwise just do a 3 fund portfolio as espoused on Bogleheads.org or stick with the target date fund youíre already doing.

As for house down payment funds, leave it in a money market or savings account for zero volatility. 

Youíre ahead of the vast majority of Americans and doing great.  Keep doing what youíre doing.

I'm not planning on moving any of the 401k money in the target date fund. I'm talking about money that I want to invest outside of the 401k.

SpiffyEh

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Re: Getting started with investing
« Reply #12 on: May 03, 2018, 07:45:27 AM »
SpiffyEh - The advice for starting investing is different from the advice for saving for a down payment.  The down payment is presumably needed soon - a few years from now.  Retirement money can grow for decades, and shrug off most market corrections.

If you decide to invest the money you're saving for a down payment, be prepared to delay your purchase if the market corrects.  Along those same lines, as you accumulate almost the amount you need, shift it to mostly bonds or cash.  For example, you might risk 50/50 stocks and bonds with your down payment, but once you're 90% done you might shift to 90% bonds/cash.  When you're ready to shop for a house, move it all into cash.

If you're sold on using Vanguard, then VTSAX (Vanguard Total Stock Market) is a good choice.  Or rather, it's choosing everything instead of making a specific choice - the entire U.S. stock market.  But as long as you're saving for a down payment and haven't saved enough, you want a lot of lower risk bonds (like Vanguard Total Bond Market).

You can also read up on the "3 fund portfolio" that uses of Total US stock, Total international stock, and Total bond market.


The money I have now is meant for a downpayment but I would like to invest a big chunk of it. I know that I will not be buying a house for at least a year, if not more, so I can put a good chunk of that money into some kind of investment.

Downpayment aside, I'm trying to figure out what I should invest in over a longer period of time. Is VTSAX more of a set it and forget it type of fund? I don't want to do too many and then face tax implications because I sold to rebalance and did something wrong.

I know timing the market isn't beneficial but when I look at VTSAX it looks like it's pretty high which makes me more nervous about buying it. Is it still a good time to buy?

GOFU

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Re: Getting started with investing
« Reply #13 on: May 03, 2018, 08:32:01 AM »
Have you done the recommended assigned reading?
« Last Edit: May 03, 2018, 09:46:58 AM by GOFU »

RePatriot

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Re: Getting started with investing
« Reply #14 on: May 03, 2018, 06:52:25 PM »

The money I have now is meant for a downpayment but I would like to invest a big chunk of it. I know that I will not be buying a house for at least a year, if not more, so I can put a good chunk of that money into some kind of investment.

Downpayment aside, I'm trying to figure out what I should invest in over a longer period of time. Is VTSAX more of a set it and forget it type of fund? I don't want to do too many and then face tax implications because I sold to rebalance and did something wrong.

I know timing the market isn't beneficial but when I look at VTSAX it looks like it's pretty high which makes me more nervous about buying it. Is it still a good time to buy?
[/quote]


x3 for reading JL Collins Stock Series.  It did a fantastic job of clarifying to me the philosophical underpinnings of this approach.  Once you understand how and why this stuff works, your questions become much easier to answer.

Don't buy stocks for short term investments.   When my wife and I were mulling over a similar question with significantly less money we settled on:
-Don't touch the down payment $ (in our case grad school money)
-Invest every penny over emergency fund + future big cost fund in taxable

We settled on that because our timeline for investing is long, but our timeline for that money was short (1-2 years).  Also, watching a chunk of money I earmarked for something go down by 40% would really rock my boat.  In the stress of a downturn, I'd rather know that my expenses are covered and my cashflow is buying stocks on sale.  If I watched that money plummet, I might be more focused on using that cashflow to save up the down payment again, which would be suboptimal IMO. 

Psychologically, I feel really good knowing that my investment money is sitting in the market for 15 years minimum.  Anything needed sooner than that, I keep in cash.

Bicycle_B

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Re: Getting started with investing
« Reply #15 on: May 03, 2018, 10:20:44 PM »

Psychologically, I feel really good knowing that my investment money is sitting in the market for 15 years minimum.  Anything needed sooner than that, I keep in cash.

15 years might be a little more than is technically optimal.   :)

But a plan you can stick with is the best plan, especially if it means you sleep at night.

RePatriot

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Re: Getting started with investing
« Reply #16 on: May 08, 2018, 05:54:54 AM »

Psychologically, I feel really good knowing that my investment money is sitting in the market for 15 years minimum.  Anything needed sooner than that, I keep in cash.

15 years might be a little more than is technically optimal.   :)

But a plan you can stick with is the best plan, especially if it means you sleep at night.

Can you expand on this?  I'm curious on your reasoning for why that long of a hold time is less optimal.  From my context, I'm youngish (28) and early on in my journey (just started investing this year).  I plan on buying and holding for a long time; 15 years was just a stand in for "until my family and I are secure."

Unless you are saying it typically doesn't take that long to FIRE?

MustacheAndaHalf

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Re: Getting started with investing
« Reply #17 on: May 08, 2018, 07:36:38 AM »
Okay, first invest in VTSAX because that's a better idea than being in cash.  You can even ease into it, by dividing your money into chunks, where each chunk is small enough you're comfortable buying VTSAX with that chunk.  Then you're not somebody saving in savings account, you're investing!  And your returns over the long haul should be better.


"I know that I will not be buying a house for at least a year, if not more, so I can put a good chunk of that money into some kind of investment."

Without knowing the time frame or certainty of the decision, it's harder  to suggest the best plan.  If you might wait years, and you might not even buy a house, I'd suggest a "retirement allocation" of something like 50% bonds and 50% stocks.  When buying a house seems like a certainty, and a few months away, sell and hold the down payment in cash.  Otherwise the market can drop -20% and suddenly your down payment isn't enough, and you have to wait longer to save it up again.

Bicycle_B

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Re: Getting started with investing
« Reply #18 on: May 09, 2018, 12:07:55 AM »

Psychologically, I feel really good knowing that my investment money is sitting in the market for 15 years minimum.  Anything needed sooner than that, I keep in cash.

15 years might be a little more than is technically optimal.   :)

But a plan you can stick with is the best plan, especially if it means you sleep at night.

Can you expand on this?  I'm curious on your reasoning for why that long of a hold time is less optimal.  From my context, I'm youngish (28) and early on in my journey (just started investing this year).  I plan on buying and holding for a long time; 15 years was just a stand in for "until my family and I are secure."

Unless you are saying it typically doesn't take that long to FIRE?

I meant it's not optimal to require 15 years hold time as the reason for getting out of cash.  If you plan an expense 10 or 12 years from now, and hold the money in cash, you'll likely lose 15% or more of value.  If you have it in stock, it might well go up 50% or more. 

In other words, I was only commenting on the part about cash.  I agree that investing your retirement funds is wise whether or not your time to FIRE is exactly 15 years.