Author Topic: Need some advice/ideas for a relatively new investor  (Read 3431 times)

drewfromutah

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Need some advice/ideas for a relatively new investor
« on: December 26, 2013, 08:34:03 PM »
Hey guys, I'm new around here. This is a great forum and website and you all seem to be really nice and helpful. A little about myself:

I'm 25 years old, working full time and saving about 70-80% of my income. I bring home about $2200 a month after taxes and 401k contribution.

I've got about $2,400 vested in a 401k (2% of my paycheck, employer matches half of that. This is divided up between the only 10 aggressive funds that my 401k provider lets me pick), $4,000 in Lending Club (D-G notes only, using nickelsteamroller filters, expecting 13% ROI), $9,500 in liquid savings, and about $2,000 available in my checking account. I own my car outright, live at home to save on rent, and the only debt I have is from my rewards credit cards (I put everything on either my Amex Skymiles or AAdvantage for the miles) and I pay them off as soon as I get the statement.

I've got a job lined up overseas starting in May, so I plan to leave my current job at that time. I figure now is a good time to get my liquid savings working for me since they won't be of much use sitting in my .75% interest Capital One 360 savings account while I'm away for a year or two. Travel is my passion - I am not excited about working in a cubicle in my hometown and my tentative plan is to retire to Thailand or somewhere else that is cheap and warm in 5-10 years. When I am working overseas I will still be saving 70-80% of my income so I will not need a ton of liquid USD when I leave. My flight is also paid for with miles from my rewards cards bonuses.

I plan to put another 2-3k in Lending Club over the next couple of months. But I'll still have about 14-15k that I will need to find a place for. I've been reading about VTSAX Index Fund, but am not sure I want to put $10k+ of my net worth in there, since that is the minimum. Are there some other nice index funds that are similar to the Vanguard with a smaller minimum so I can spread around a little more? Another option is to just put $8-$10k in Lending Club. It seems to be pretty hard to beat LC returns.

Any other suggestions on good, specific ways to spread around my current savings account would be greatly appreciated. Right now, I am fine with being quite risky/aggressive.

« Last Edit: December 26, 2013, 09:06:56 PM by drewfromutah »

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Re: Need some advice/ideas for a relatively new investor
« Reply #1 on: December 26, 2013, 10:27:03 PM »
VTSAX is the admiral level, that means a minimum of 10K and lower expenses; there is also VTSMX at investor level that is slightly higher expenses (tiny bit) and only requires a 3K minimum (and there is an ETF version, but I don't do ETFs, and not sure the advantages of that if you're going to do a buy and hold).

So if you're going to be investing and then leaving it alone for a while, have the minimum for the admiral level, and don't mind riding out any downturns, this is the best option to go with as far as I can see. You're really young, going to be saving a great amount, and throwing it into stock index funds now is going to pay you back when you actually want to retire.

Not sure why you'd go into 10 different funds in your 401K - sounds like overkill since technically you just need to compare the expense ratios and go for one with the lowest expenses at the best returns... but if you leave this job shortly, you can roll this to an IRA and invest in anything, so might be a good idea to do some reading on the bogleheads investment guide and simplify your holdings. At your age, going even 90-100% stocks (especially index fund) wouldn't be too out of line... sure, it's aggressive, but you've got the time for it to weather the bumps (at least that's what I would do in your position).

And way to go on doing so very well so early in your life - that is awesome!

drewfromutah

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Re: Need some advice/ideas for a relatively new investor
« Reply #2 on: December 27, 2013, 10:15:53 AM »
VTSAX is the admiral level, that means a minimum of 10K and lower expenses; there is also VTSMX at investor level that is slightly higher expenses (tiny bit) and only requires a 3K minimum (and there is an ETF version, but I don't do ETFs, and not sure the advantages of that if you're going to do a buy and hold).

So if you're going to be investing and then leaving it alone for a while, have the minimum for the admiral level, and don't mind riding out any downturns, this is the best option to go with as far as I can see. You're really young, going to be saving a great amount, and throwing it into stock index funds now is going to pay you back when you actually want to retire.

Not sure why you'd go into 10 different funds in your 401K - sounds like overkill since technically you just need to compare the expense ratios and go for one with the lowest expenses at the best returns... but if you leave this job shortly, you can roll this to an IRA and invest in anything, so might be a good idea to do some reading on the bogleheads investment guide and simplify your holdings. At your age, going even 90-100% stocks (especially index fund) wouldn't be too out of line... sure, it's aggressive, but you've got the time for it to weather the bumps (at least that's what I would do in your position).

And way to go on doing so very well so early in your life - that is awesome!

Thanks for the advice and kind words. I'm starting to consider dropping 10k into the admiral level. I know MMM says not to try and time the market, but it seems like right now may be a bad time to go in, as it's basically at an all time high.

I'm reviewing my 401k options again today. I may put it all into the S&P500 fund until I'm ready to rollover.




iamlindoro

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Re: Need some advice/ideas for a relatively new investor
« Reply #3 on: December 27, 2013, 10:28:09 AM »
Quote
I'm starting to consider dropping 10k into the admiral level. I know MMM says not to try and time the market, but it seems like right now may be a bad time to go in, as it's basically at an all time high.

This is market timing in its purest form.  We are *always* headed for a new all time high, and neither you nor I know whether the market will be up or down 30% next year.  Being at an all time high does not indicate that a drop is on the horizon in any way, shape, or form.  If you had used this line of thinking at any time from 1980-2000, you would have missed out on doubling your money four times.  Don't do it!  Get in the game!  Your investment may rise or fall in the near term, but in the long term it will continue to rise.

drewfromutah

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Re: Need some advice/ideas for a relatively new investor
« Reply #4 on: December 27, 2013, 11:26:10 AM »
Quote
I'm starting to consider dropping 10k into the admiral level. I know MMM says not to try and time the market, but it seems like right now may be a bad time to go in, as it's basically at an all time high.

This is market timing in its purest form.  We are *always* headed for a new all time high, and neither you nor I know whether the market will be up or down 30% next year.  Being at an all time high does not indicate that a drop is on the horizon in any way, shape, or form.  If you had used this line of thinking at any time from 1980-2000, you would have missed out on doubling your money four times.  Don't do it!  Get in the game!  Your investment may rise or fall in the near term, but in the long term it will continue to rise.

Sounds good. You're right. I'm going to start with $5k in the investor level total index fund, and then once I hit $10k I'll switch over to the Admiral level. Seems pretty easy to do on the website.

drewfromutah

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Re: Need some advice/ideas for a relatively new investor
« Reply #5 on: January 01, 2014, 06:09:04 PM »
Would you guys agree that automatically sending 20% of each paycheck to VTSMX is a good call? I dropped $5k in just recently. I'd like to keep contributing until I hit $10k and then switch to the Admiral fund for the .05% expense ratio. For the record I'm sending another 20% of each check to Lending Club, about 30% to liquid savings, and spending the rest. It is scary just automatically buying stocks every other Friday, but I'm thinking it is a solid plan.

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Re: Need some advice/ideas for a relatively new investor
« Reply #6 on: January 01, 2014, 07:08:02 PM »
Would you guys agree that automatically sending 20% of each paycheck to VTSMX is a good call? I dropped $5k in just recently. I'd like to keep contributing until I hit $10k and then switch to the Admiral fund for the .05% expense ratio. For the record I'm sending another 20% of each check to Lending Club, about 30% to liquid savings, and spending the rest. It is scary just automatically buying stocks every other Friday, but I'm thinking it is a solid plan.

Yup.  Good idea.

I know when I first started, it was really hard to not freak out when the market dropped, but I've been reading and learning and I'm fine now with automatic investments and get that when the market is down, stocks are on sale. The more you learn about this stuff, the more confident you'll feel about your moves. (and asking questions on here helped me immensely also!)

Couple of other good links to help understand how this stuff works:
http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/
http://jlcollinsnh.com/stock-series/

sdp

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Re: Need some advice/ideas for a relatively new investor
« Reply #7 on: January 01, 2014, 09:35:01 PM »
Just do it!  remember the S&P was at an all time high...when it reached 500 for the first time.    Yup wasn't that long ago, happened in spring of 1995.  Just think about what happened for the next coupla years, and also where it is now.  Up the amount of your 401(K) contribution ALOT.  This is your retirement, think of it in terms of decades or fifty years from now.  While you are at it, open a ROTH and max it.
Cheers,
Scott