Author Topic: Shoestring budget investing  (Read 6052 times)

Iliya Moroumetz

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Shoestring budget investing
« on: July 03, 2013, 10:54:40 PM »
Hello, everyone.

Being new here, I checked through the pages and couldn't find anything akin to what I'm about to ask, so, I'll keep it brief and to the point;

I'd like to invest, however, my current financial situation has me making less than $300 a month.  The bills I have to pay are minor enough that I'm in no danger.

Which leads me to the following;  do Vanguard/Fidelity have investing/stock options for those of us who would probably do better with Penny Stocks?  I have been putting away 10% of every paycheck into savings and I'm liking how it's slowly growing.  I certainly wouldn't mind putting another 10 or 20 percent into something that would eventually give returns in the long run and would like to think myself ready to pay off my 20k student loan debt as soon as I graduate again.

Any one know?

nuclear85

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Re: Shoestring budget investing
« Reply #1 on: July 04, 2013, 02:28:31 AM »
So, you're saving roughly $30/month, is that correct? Honestly, I think just keeping it in a savings account may be your best option -- keep it as a student loan payoff fund for when you graduate. Or, start paying off the student loans now if they're gathering interest.

If you want to invest, trading fees will eat you alive at $30/month. Penny stocks are also not something to be playing around with unless you want to lose all your money. The only way I see investing making sense is if you save money up and make one trade about once a year, in something like an ETF or index fund (VTI for example).

aclarridge

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Re: Shoestring budget investing
« Reply #2 on: July 04, 2013, 09:02:06 AM »
You would not do better with penny stocks. They are not a serious investment and the casino is probably a more fun way to waste your money.
If you're in Canada, look into TD e-series mutual funds. No trading commissions, fairly low MERs.

If you're in the US, I'm no expert but I believe you can open up a Vanguard account for free and only pay a bit higher MER on their funds if it's small amounts. I would think this is your best option if you want to invest, somebody else should chime in though.

I'd say the best ways you can invest now though are:
1. Invest in yourself first - do whatever you need to do to make sure you can make decent money in your field once you enter the workforce. This by far most important right now!
2. Save part of what you make in a savings account. It sucks right now for returns, but it's guaranteed money and it's nice to have a buffer especially once you'll have higher bills and loan payments to make.
3. Start investing in index funds if you think you're ready, but don't pay any transaction fees because they'll eat up too much of your stash right now. Don't get discouraged and invest for the long term. Keep reading about it and make an Investment Policy Statement (IPS).
« Last Edit: July 04, 2013, 09:05:18 AM by FI40 »

Iliya Moroumetz

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Re: Shoestring budget investing
« Reply #3 on: July 04, 2013, 11:32:04 AM »
I see.

Oh well, at least I'm saving for the first time in my life and it feels good.

And perhaps it would be best if I killed my debt as soon as I graduate and then start investing.

Thanks for the advice. :)

arebelspy

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Re: Shoestring budget investing
« Reply #4 on: July 04, 2013, 01:41:50 PM »
Penny stocks are named as such based on the price - and they are priced according to risk.  That is, they are super long shots at paying off, and akin to gambling.

They have nothing to do with how much you have to invest.

If I were investing purely in equities anywhere from $0-1MM or so, my plan would be the same.  Doesn't matter if I'm adding $30/mo or $10000/mo.

Paying off the debt isn't a bad idea at all, depending on the interest rate.  Otherwise investing small is probably tough, as commissions could eat you up ($9/trade on a $30 trade kills your return, obviously).  You could look for places that offer a small number of free trades per month, and go there.

But stick with a solid investment plan, not penny stocks.  :)
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nataelj

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Re: Shoestring budget investing
« Reply #5 on: July 04, 2013, 09:56:43 PM »
I'd say set priorities to 1. Pay off debt (at least all that doesn't have a very low interest rate). 2. Build up an emergency fund (several MMM articles on this if you search). 3. Start investing as discussed above in Vanguard ETF funds (also discussions of this in MMM articles if you search).

If you buy through Vanguard directly you don't have to pay exchange fees, and if you're concerned that $30/month is too little then save it up and buy every 3 months, or every 6! That will help keep your costs down while still getting you into the market.

And a final reiteration of the above warnings against penny stocks, they're a terrible investment. One of the joys of ETF funds is that with one purchase you can actually invest in the entire market even with only a small amount of money. Take advantage of that!

TLV

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Re: Shoestring budget investing
« Reply #6 on: July 05, 2013, 08:16:32 AM »
Vanguard mutual funds typically have a minimum of 3k, so it would take a while to build that up.

The ETFs you could buy one share at a time commission free through a vanguard brokerage account. A share of VTI (total stock market index) runs about $80-90 currently.

Also, correct me if I'm wrong, but I thought I remembered Sharebuilder having a program with no trading fees if you set up an automatic investment.

nataelj

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Re: Shoestring budget investing
« Reply #7 on: July 05, 2013, 08:38:23 AM »
It's not no trading fees, but it is reduced trading fees via the automatic investing option at Sharebuilder. I use that as well actually. You can set your Sharebuilder account to automatically pull your $30 every month and then also set it to automatically make a purchase of a certain stock. You can set the purchase to be automatic or set it to only occur when a certain threshold of money is reached (e.g. wait until you have $200 to purchase or something like that). That process also allows you to buy partial shares so your entire money is invested even if it's less than the share price, which is not a bad choice.

A good suggestion that one. If you do it though I'd recommend setting your threshold higher as the trading fee is constant regardless of amount so if you buy in larger chunks less frequently you can directly reduce your trading costs.
« Last Edit: July 05, 2013, 09:00:05 AM by nataelj »

Zamboni

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Re: Shoestring budget investing
« Reply #8 on: July 05, 2013, 08:59:10 AM »
Do you have a retirement account? 

One of my friends set up a Roth IRA when we were in high school and she got a part time job as a bank teller.  I thought she was nuts at the time.  Now I know she was brilliant. 

I don't even want to think about how much money that even $20 per month then would be worth now after 25 years of compounding.  Some of the finance books have examples like this with very small monthly contributions (I think there was one in the book Millionaire Teacher, which I highly recommend as simple and fun reading for anyone starting out.) 

One of the advantages of going the Roth route is that you can withdraw the principle after 5 years without penalty, so it's a nice retirement vehicle that could also be effectively used to save money for a house down payment, for example.  My same friend bought a nice house (all by herself!) before I had even graduated college.  I was in awe of her financial acumen.  The traditional IRA route, rather than the Roth, has the advantage of being pre-tax if you want to go that way, but it's harder to get at that money before 59 1/2 and I'm not sure that's the right avenue for you at this moment.  If you want to have better access to the money, go the Roth route.  It will be tied up enough to keep you from making silly decisions about withdrawals, but will build up value in the market.

My advice would be to call Vanguard's phone number and see what they can do for you to set up one of these types of accounts.  If your employer has a benefits line that goes to Vanguard (even though maybe you are a student, just look on the employee benefits website and call that number instead), then use that number as those folks are generally even more helpful and patient.  They can at least tell you about any account set up minimums to give you something to shoot for.

Good luck, and please keep us posted!

Marmot

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Re: Shoestring budget investing
« Reply #9 on: July 05, 2013, 11:38:23 AM »
All great advice so far.

To reiterate what I think are the most important points, while also editorializing a bit, I would recommend that you consider doing the following before investing in equities, index fund, bonds, etc.:
  • Invest in yourself: Does not necessarily need to cost money, as there are plenty of free learning options available; can also include improving your physical health and other non-education areas (as mentioned many other times by others in this message board); be extremely careful/selective if you decided to due this partially through student loans; make sure to consider return on investment (ROI))
  • Pay down debt: Though this sounds counter-intuitive, consider paying down your smallest size debt first to build momentum; then once you are ready, switch to paying down highest interest rate debt to lowest. From a purely mathematical standpoint (and without taking into account emotion), prioritizing the debt with the highest interest rate makes more sense; so once you are locked in and confident you are in debt paydown mode for the long run, switch to prioritizing highest rates first. As people are different, different methods work best for different people; just be sure to be aware and balance what makes most sense from a mathematical standpoint and commitment/likelihood of success standpoint (if you do not think paying down smallest first is necessary for you, then just do largest interest to smallest interest; or some other iteration customized to yourself). Mortgages where you are caught up on payments might be an exception.
  • Emergency fund: If possible, 6 months of expenses in largely risk-free and liquid account
I do not have a numbering of importance, because I do not think that "invest in yourself" and "pay down debt" are mutually exclusive in many ways; "invest in yourself" is so broad/ambiguous that both can be done at same time.

Once debt is handled and you have emergency fund, and there is money left over even after investing in yourself and covering all monthly expenses, start saving for retirement/FI. Even after finishing paying down debt and building up emergency fund, continue investing in yourself in various ways for rest of life.

There are exceptions to this advice; ie I had student debt while also contributing to Roth in past (though that type of student debt was interest free until 6 months after graduation; was able to pay off in entirety before started incurring interest). Also, certain types of debt have lower interest than historical long term gains in equities; ie if you were able to get a mortgage for 3.5% interest, and reasonably expect to get over 5% gains per year for your diversified investments (with adequate risk management), it might be prudent to not pay down your mortgage too quickly (taking advantage of this spread might be a tightrope walk though and not worth the non-financial costs for some, such as anxiety and piece of mind).

Be aware of factors/options and logic behind advice/recommendations, then customize a plan that you believe would work best. Best of luck!

Iliya Moroumetz

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Re: Shoestring budget investing
« Reply #10 on: July 06, 2013, 05:44:58 PM »
To answer Zamboni's question;

I sadly do not.  I just found this site recently and I've decided that I don't want to live with the specter of debt to haunt me for the rest of my life.  Better late than never and being 34, I think I still got some time.

Though, like many others, I wish I knew the stuff on this site when I was in my 20s.  Ugh.

With that said, I'm still going through the articles on the site and am trying to apply to them as much as I can, given my circumstances.

Kriegsspiel

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Re: Shoestring budget investing
« Reply #11 on: July 06, 2013, 07:04:05 PM »
If I were you, I would open up a Vanguard account and buy their ETFs. Their ETFs have the expense ratio of their Admiral shares, which require $10,000 in the mutual funds, are commission-free, and don't require $3,000 minimum buy in. Just get VTI and BND and use those for a while.

fiskeb

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Re: Shoestring budget investing
« Reply #12 on: July 08, 2013, 06:43:37 PM »
NO PENNY STOCKS!!!  I wouldn't invest at all.  Save as much as you can into a big fat emergency fund for now.  With that income it wouldn't take much for you to have some real problems, and any saving you do have could vaporize quick and take forever to replenish.

And if family is supporting you...  This is the land of independence!

I would buy a hot dog cart and make some money with it before I bought penny stocks!  Seriously though, work out a deal with a local big box store to fling some dogs out front on weekends, and you loans are gone before you are out of school.