Author Topic: New to investing, not sure where to start  (Read 1073 times)

Rbrat2014

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New to investing, not sure where to start
« on: January 15, 2017, 11:40:58 AM »
I am 25 years old, based in the US and working abroad most of the year.  Currently,  I make about 24k/year after taxes and insurance deductions. I am able to save at least $1000 a month.

I start a new job in 6 months and my salary will increase to 28k, my employer is paying my taxes and and I won't owe any to the US. They also provide living arrangements and insurance,  so my cost of living (currently 1k) will decrease by 250/month.  At this point,  I should be able to save 1,250/month without struggle.

I have no debt. I don't have a car. My job does not offer a 401k, or any other kind of retirement savings.

I have 30k in my savings account,  not counting what I would keep as an emergency fund.

Without any employer options, what kind of plan should I be investing in? Is it better to pay taxes on the money now,  or when I need to take it out.  I don't plan on retiring for at least 20 years.

It sounds like index funds are the way to go,  but I'm just confused on how to start.

Any advice or reading recommendations are greatly appreciated.

tawyer

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Re: New to investing, not sure where to start
« Reply #1 on: January 15, 2017, 12:28:05 PM »
You should open a Traditional IRA or Roth IRA with Vanguard. If you expect your retirement income taxes to be higher, go with the Roth IRA. If you expect your retirement income taxes to be lower, go with the Traditional IRA. You have a few more months to make your 2016 contribution of $5500, and the rest of the year to make your 2017 contribution of $5500. You can contribute $11000 today. Then with the money in your IRA bucket, purchase VTSAX, Vanguard's low cost total stock market index fund.

The important thing to remember about these tax exempt accounts with annual contribution limits is that if you don't take advantage of them now, the opportunity is lost forever. So act now, learn a bit more, then modify to suit your needs. "Lazy portfolios" and "Bogleheads" are good search terms to start your journey. You should also open a standard taxable brokerage account with Vanguard, because it seems like you have more money than the tax deferred accounts currently allow you to invest.

To your question, it's better to pay taxes on the income when you are in the lowest tax bracket, either because your last dollar earned falls in a lower bracket, or because you are resident in a state with lower income taxes.

Mighty-Dollar

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Re: New to investing, not sure where to start
« Reply #2 on: January 15, 2017, 03:34:23 PM »
Open account with E Trade or AmeriTrade then invest in a total stock market index fund (and maybe an international index fund) and a total bond market index fund.

Mr Mark

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Re: New to investing, not sure where to start
« Reply #3 on: January 19, 2017, 03:28:07 AM »
You should open a Traditional IRA or Roth IRA with Vanguard. If you expect your retirement income taxes to be higher, go with the Roth IRA. If you expect your retirement income taxes to be lower, go with the Traditional IRA. You have a few more months to make your 2016 contribution of $5500, and the rest of the year to make your 2017 contribution of $5500. You can contribute $11000 today. Then with the money in your IRA bucket, purchase VTSAX, Vanguard's low cost total stock market index fund.

The important thing to remember about these tax exempt accounts with annual contribution limits is that if you don't take advantage of them now, the opportunity is lost forever. So act now, learn a bit more, then modify to suit your needs. "Lazy portfolios" and "Bogleheads" are good search terms to start your journey. You should also open a standard taxable brokerage account with Vanguard, because it seems like you have more money than the tax deferred accounts currently allow you to invest.

To your question, it's better to pay taxes on the income when you are in the lowest tax bracket, either because your last dollar earned falls in a lower bracket, or because you are resident in a state with lower income taxes.

this is excellent advice.

And with the rest, put it into a standard vanguard account with either VTSAX or perhaps a mix of other low cost Vanguard index funds depending on your strategy. At your tender age a 100% stock exposure is probably OK, but I prefer to have a (small) % in bonds.  I use some VWELX for this, (or VWENX when you have more than 50k) as they have about 35-40% in intermediate term bonds.

An alternative would be to have the IRA money in a more tax adverse index with a higher yield ie REITs which are down lately due to interest rate concerns, and balance that risk with safer indexes in the taxable account.

Good luck. You're off to a fantastic start.