Author Topic: New Investor HELP!!!  (Read 1492 times)

BORN SAVER

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New Investor HELP!!!
« on: August 29, 2016, 03:49:56 AM »
Hey guys,

I almost have all my debts payed off and and just starting to get into investing. I just started putting away $100 in a roth a month but will soon be trying invest 1k a month or more.  But just wanted to check on a couple things with you guys.

1. what types of investments on the market do you guys prefer? (mutual funds, index funds, stocks, ect.) I was probably things of something a like (VRNIX) and (VTCAX)?

2. People seem to love things like 401k but i just dont like the idea of not being able to access my money till im 59.5. Especially when I'm trying to fire by 40 or younger. I feel like there is a huge cost to being not being able to take advantage of an opportunity when it pops up cause you money is lock up in something you cant touch. thoughts?

3. My little brother is starting to trade individual stock. I'm a little Leary of this i believe the general consist is that people thing its like gambling around here. And just want to make sure hes not doing something dumb. I know he is at least trying to do his own annalists of stocks for there true value. Things like seeing how much debt they have and how much there profiting ect. Is this dumb for him to do?       

RWD

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Re: New Investor HELP!!!
« Reply #1 on: August 29, 2016, 09:54:30 AM »
1. Low cost indexes funds (e.g. VTSAX, VTIAX, VBTLX)
http://jlcollinsnh.com/stock-series/

2. There are multiple ways to access your 401k before age 59.5 without penalty
http://www.madfientist.com/how-to-access-retirement-funds-early/

3. Don't trade individual stocks

Milkshake

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Re: New Investor HELP!!!
« Reply #2 on: August 29, 2016, 10:28:06 AM »
This is the standard "tried and true" advice from many mustachians here. This is pulled from the case study spreadsheet.

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial

When it comes to investing, I would start a vanguard account and buy VTSMX ($3K min) until you can convert them to VTSAX ($10K min). And as RWD said, there are multiple ways to get your money out early. Saving money on taxes far out weighs the effort of starting a 401k-Roth conversion ladder.

*edited for grammar

radram

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Re: New Investor HELP!!!
« Reply #3 on: August 29, 2016, 10:50:04 AM »
Hey guys,

I almost have all my debts payed off and and just starting to get into investing. I just started putting away $100 in a roth a month but will soon be trying invest 1k a month or more.  But just wanted to check on a couple things with you guys.

1. what types of investments on the market do you guys prefer? (mutual funds, index funds, stocks, ect.) I was probably things of something a like (VRNIX) and (VTCAX)?

2. People seem to love things like 401k but i just dont like the idea of not being able to access my money till im 59.5. Especially when I'm trying to fire by 40 or younger. I feel like there is a huge cost to being not being able to take advantage of an opportunity when it pops up cause you money is lock up in something you cant touch. thoughts?

3. My little brother is starting to trade individual stock. I'm a little Leary of this i believe the general consist is that people thing its like gambling around here. And just want to make sure hes not doing something dumb. I know he is at least trying to do his own annalists of stocks for there true value. Things like seeing how much debt they have and how much there profiting ect. Is this dumb for him to do?     

What RWD said..... plus:

1.Everyone is different, but FIRE people will often have lower income in years between FIRE date and SS/pension payments.  If that will be true for you, I would max out your 401k first.  First, you are probably missing out on a free match for some amount you contribute.  If you do have a match, your min should be the amount to give you the max match.  Second, you can use those years between FIRE and SS to convert your 401k to ROTH, and often while paying less taxes than you would now.  What is your current income and projected spending in FIRE?

2. Look up Roth ladder to see a good plan to go from 401k to Roth.  It can then be accessed without penalty if you carefully follow the rules.  The plan takes 5 years to enact.  Other then that, not having access to it is EXACTLY where it should be.  No/difficult access to retirement money is a VERY GOOD THING.

3. It is not at all gambling, but even your use of the word gambling does not mean what you think it means.  Sit down at a table of professional gamblers for a day using your own money and you will know what I mean.  The only one at the table who is "gambling" is you.  The rest are "working" on getting your money, and they are good at it.

The issue with individual stocks is that while there are many reasons to sell a stock(don't like it, portfolio adjustment, you need income, etc.), there is only one true reason to buy one..... you think it is the best place for that money at that time. By buying 1 stock, you are saying you know the 1 place for that money to best be placed.  You may be right, but like sitting at a table of professional gamblers, there are always people that know more than you.  That feeling of gambling with a stock is more accurately called RISK.  You can risk it on 1 stock, or risk it by buying ALL stocks, or a portion thereof via an index fund.  That is where I focus the majority of my funds.  I still love investing in individual stocks after research, but I have not done better than "the market".  If your brother loves it, I would encourage him to continue, but I would recommend to your brother to keep individual stocks as a portion of his portfolio (5% to 10% tops).  If he buys and holds, history shows he will make money, but he will want to know if he would have made MORE money buying an index fund.  Most of the time (in fact 80% of PROFESSIONAL money managers) the index fund will do better after fees.

You used a very important word regarding your brother... "trade".  That means buying AND selling, and history shows that all the things that go with that will not lead to good results (think timing markets, day trading, etc.).  If he wants to, he should buy some stocks, but I do not recommend he trade stocks.


Malasorte

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Re: New Investor HELP!!!
« Reply #4 on: August 29, 2016, 02:30:31 PM »
This is the standard "tried and true" advice from many mustachians here. This is pulled from the case study spreadsheet.

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial

When it comes to investing, I would start a vanguard account and buy VTSMX ($3K min) until you can convert them to VTSAX ($10K min). And as RWD said, there are multiple ways to get your money out early. Saving money on taxes far out weighs the effort of starting a 401k-Roth conversion ladder.

*edited for grammar

I would really love to see this tried and true path also for European countries.
Anybody has seen it "documented" in the same way?


MoonLiteNite

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Re: New Investor HELP!!!
« Reply #5 on: August 29, 2016, 02:59:02 PM »
1)
I personally keep about 80% in index and REIT funds, and some little others.
10% in LC
10% in a day/swing trading account. I do enjoy doing the TA and finding the nice swings and pull a quick 20% gain in just a week :) just sucks to take those 5% losses

2)
Plenty of ways to get your money out sooner than that, without paying extra fees. I am sure tons of people here will help you with that.

3)
It is only gambling to the uneducated. If it was gambling, people couldn't do it for a living. It takes a lot of skill, math, and self control to NOT lose your money. And if you brother is jumping up and down claiming 100% gains every month. I bet he has only been trading for 2 months, over time his % will drop. Now the question is, can he beat the overall market.


« Last Edit: August 29, 2016, 03:02:54 PM by MoonLiteNite »