Author Topic: Investing help  (Read 1551 times)

Tyler118

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Investing help
« on: October 17, 2021, 10:11:30 PM »
Hello all,

I'm looking for a topic on investing. A little background. My wife and I are debt free besides the house. We follow the Dave Ramsy approach. We have 100k in savings, 25k of that would be our emergency fund. We owe 270k on the house with a 15 year mortgage. We make around 140k a year and have our retirements/IRA's maxed out. With that being said I finally talked my wife into letting us invest the 75k after showing her how much we could make if it weren't in a savings account. I know I've seen posts about Vanguard and using some of Vanguards mutual funds but cant seem to find any? Can anyone help me out with getting started investing with Vanguard or share a post that I cant find or if I should go another route? I'm pretty sure I could invest the money in the funds myself but another option would be getting a financial adviser. My parents said their financial advisor would take me on but they make 10x plus then me a year and have a fancy NYC investor that I would imagine charges a lot and don't think it would be beneficial for me. The other option would be contacting the local EdwardJones. Any thoughts are appreciated! I really want to get this extra money working for me!

shuffler

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Re: Investing help
« Reply #1 on: October 17, 2021, 11:35:49 PM »
Seems like you're in a position where this would be a good read for you:
     https://jlcollinsnh.com/stock-series/

Tyler118

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Re: Investing help
« Reply #2 on: October 18, 2021, 01:33:28 AM »
Thank you for your advice I'll start to look over the posts!

getmoneyeatpizza

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Re: Investing help
« Reply #3 on: October 18, 2021, 08:12:34 AM »
How old are you and when to do you want to retire?

Calculate your current asset allocation: https://www.bogleheads.org/wiki/Asset_allocation

And then decide what you want that asset allocation to be based on that article. Without more info I'd just suggest 120 minus your age and hold that percent in stocks and the rest bonds. So if you're 40 you would have 80% stock 20% bonds.

Then open a vanguard account and buy $75,000 in VTSAX which is a total us stock index. Never sell it until you retire.

Re-balance in the retirement account or IRA to maintain that 80/20 split or whatever it is. You don't want to hold bonds in a taxable account for tax efficiency purposes, keep those in your tax deferred accounts.

Sandi_k

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Re: Investing help
« Reply #4 on: October 18, 2021, 02:43:57 PM »
https://www.bogleheads.org/wiki/Three-fund_portfolio

Basic ideas:

- The two things you can do are: save more, and reduce the fees on what you invest in.
- Therefore, automate the investing - pull from your check, or your bank account, with every pay day.
- Buy low-cost index funds.

Tyler118

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Re: Investing help
« Reply #5 on: October 18, 2021, 02:46:45 PM »
Thanks for that advice, the other link Shuffler mentioned also talked about the VTSAX. It looks like it has a pretty good track record. My wife and I are both 30 years old.

On this note we would like to pay off our mortgage early. I know it doesn't make financial sense as that money could be making me even more money but it's more for peace of mind.

Would you suggest we keep adding our extra money each month to the Vanguard account and then take some out to pay off the mortgage at some point or use the extra money each month to pay off the mortgage?

Thanks!

Financial.Velociraptor

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Re: Investing help
« Reply #6 on: October 18, 2021, 04:17:42 PM »
Thanks for that advice, the other link Shuffler mentioned also talked about the VTSAX. It looks like it has a pretty good track record. My wife and I are both 30 years old.

On this note we would like to pay off our mortgage early. I know it doesn't make financial sense as that money could be making me even more money but it's more for peace of mind.

Would you suggest we keep adding our extra money each month to the Vanguard account and then take some out to pay off the mortgage at some point or use the extra money each month to pay off the mortgage?

Thanks!

I paid off my mortgage before doing any investing at all except for what I put in 401(k), which was just enough to max the employer match.  Hindsight being 20/20, it was clearly the wrong decision mathematically.  I regret it not one moment.  The peace of mind was worth far more than a few hundred basis points of outperformance.  And knowing I wasn't risking the "house money" in the market, let me feel comfortable with more aggressive investments.  I really cleaned up shorting (with long puts) VXX from 2009 to 2012.   I might still be working if I had kept the mortgage and just indexed. 

There are people here who will treat it like a moral failing if you pay off your mortgage early.  Know that investor psychology is 90% of what determines investment outcomes.  If you will get a twitchy "sell" finger if you are risking capital that you'd prefer in equity, pay it off already.

MustacheAndaHalf

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Re: Investing help
« Reply #7 on: October 19, 2021, 08:46:41 AM »
I paid off my mortgage before doing any investing at all ...
There are people here who will treat it like a moral failing if you pay off your mortgage early.
Have you considered traveling to Vanguard headquarters, kneeling to face John Bogle's (former?) office, and chanting "indexing.... home equity blinded me to low costs... indexing..." ?  Haha, kidding!  There's certainly worse "moral failings" in investing, and I would claim it's not a failing.  It's important people know the pros and cons, but once they have all the information, I believe two different people can make opposite decisions and both be right.


We follow the Dave Ramsy approach ... invest the 75k after showing her how much we could make if it weren't in a savings account.
It's good that you got out of debt, but I would strongly advise you to listen to someone else about investing.  Ramsey claims all debt is bad... then why do many billionaires take out margin loans against their stock holdings?
https://www.wsj.com/articles/buy-borrow-die-how-rich-americans-live-off-their-paper-wealth-11625909583

Before deciding to pay off your mortgage, I'd suggest setting Dave Ramsey aside and making your own list of pros and cons.  For example, stock market returns are historically much better than mortgage rates, favoring keeping the mortgage.  And a mortgage interest is tax deductible.  If you've always had owning a home free and clear as a financial goal, that's a plus to paying it off.  Once it's paid off, your monthly expenses are much lower.

Personally, I liked Suze Orman's advice on debt, but not on investing.  Ramsey and Orman both have "escaping debt" as their specialty - they aren't experts at everything.  The book "A Random Walk Down Wall Street" is much better advice, now in it's 12th edition (earlier editions are probably available at a nearby library).  It backs up claims with decades of historical data, so you get the factual view.  You will find almost everyone who wants your investment money does not provide decades of data to back up their claims.
« Last Edit: October 20, 2021, 09:30:07 AM by MustacheAndaHalf »

dandarc

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Re: Investing help
« Reply #8 on: October 19, 2021, 09:01:58 AM »
Good instinct on not hiring an advisor. And even if you do hire one, absolutely do not hire your parent's financial advisor.

When the time comes that you realize a financial advisor is providing you almost nothing, certainly not enough to justify their fees, you don't want to have pressure coming from your parents to keep their buddy on your payroll.

JohnnyZ

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Re: Investing help
« Reply #9 on: October 19, 2021, 09:25:39 AM »
I paid off my mortgage before doing any investing at all except for what I put in 401(k), which was just enough to max the employer match.  Hindsight being 20/20, it was clearly the wrong decision mathematically.  I regret it not one moment.  The peace of mind was worth far more than a few hundred basis points of outperformance.  And knowing I wasn't risking the "house money" in the market, let me feel comfortable with more aggressive investments.  I really cleaned up shorting (with long puts) VXX from 2009 to 2012.   I might still be working if I had kept the mortgage and just indexed. 

There are people here who will treat it like a moral failing if you pay off your mortgage early.  Know that investor psychology is 90% of what determines investment outcomes.  If you will get a twitchy "sell" finger if you are risking capital that you'd prefer in equity, pay it off already.

I agree. I also paid off my mortgage early, and it was also the wrong choice financially (for example, I just found out that I could have gotten some money to help with either the rent or mortgage payments), but I don't regret it as mortgage payment was a big part of my yearly expenses and it helps with the peace of mind, especially as you approach FI. I think there is no general right or wrong answer here, it really is a very individual and psychological choice.

dandarc

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Re: Investing help
« Reply #10 on: October 19, 2021, 09:37:38 AM »
I paid off my mortgage before doing any investing at all except for what I put in 401(k), which was just enough to max the employer match.  Hindsight being 20/20, it was clearly the wrong decision mathematically.  I regret it not one moment.  The peace of mind was worth far more than a few hundred basis points of outperformance.  And knowing I wasn't risking the "house money" in the market, let me feel comfortable with more aggressive investments.  I really cleaned up shorting (with long puts) VXX from 2009 to 2012.   I might still be working if I had kept the mortgage and just indexed. 

There are people here who will treat it like a moral failing if you pay off your mortgage early.  Know that investor psychology is 90% of what determines investment outcomes.  If you will get a twitchy "sell" finger if you are risking capital that you'd prefer in equity, pay it off already.

I agree. I also paid off my mortgage early, and it was also the wrong choice financially (for example, I just found out that I could have gotten some money to help with either the rent or mortgage payments), but I don't regret it as mortgage payment was a big part of my yearly expenses and it helps with the peace of mind, especially as you approach FI. I think there is no general right or wrong answer here, it really is a very individual and psychological choice.
I think this varies by location / how big your house is relative to your income and overall financial situation. Paying off our house felt great until I realized how big a pure-numbers financial error it was, and in our case the payment on a 30 year fixed is under $600 / month. So by following Ramsey's advice (which is exactly what I was doing at that time) I made a huge error, and the strain on cash-flow was insignificant for us. Corrected it a few years later, but I'm out at least $50K aleady and compounding - I can only hope to be more rational in the future.

Now if I was in a situation where that payment was a huge chunk of our income maybe the "this cash-flow demand will influence your behavior" argument holds more water.

dandarc

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Re: Investing help
« Reply #11 on: October 19, 2021, 09:39:41 AM »
And to add - so long as the alternative is not "hookers and blow" and it really is Mortgage vs. Investing, you're not doing horribly by paying off the mortgage vs. investing more - quite sub-optimal when interest rates are so low, but not a horrible decision.

Sandi_k

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Re: Investing help
« Reply #12 on: October 20, 2021, 09:41:49 AM »
Resist binary thinking. It's not "pay off the mortgage in an accelerated timeframe OR invest."

It can be "pay off the mortgage in an accelerated timeframe AND invest."

We decided on 15% MINIMUM for investment, and then worked our way up to 20% of our GROSS income over a couple of years of raises.

AND we rounded the mortgage payment up by 1/12th of the annual paid principal each month, so we essentially paid "an extra month each year."

The compounding from the investments is HUGE - don't miss it by funneling all your extra cash against the mortgage. Sure, funnel SOME to the mortgage. But not ALL of it.

getmoneyeatpizza

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Re: Investing help
« Reply #13 on: October 20, 2021, 10:28:03 AM »
A 15 year is already great. I would not pay off your mortgage.

No it does not make sense to put money into vanguard and then take it out to pay a mortgage.

It doesn't make sense to pay off your mortgage but if you insist then try to  split it up as previously mentioned.

If you have $400 extra a month. Maybe put $100 extra into mortgage and $300 extra into vanguard 

BicycleB

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Re: Investing help
« Reply #14 on: October 20, 2021, 10:35:07 AM »
@Tyler118, you're getting good advice here.

I'd invest rather than make early mortgage payments, but if married, be considerate of spouse's feelings - marriage is more important than any other choice, you need a path you both can live with. If spouse would feel better paying off mortgage first, I'd consider it strongly.

Since you're new to investing and parents have advisors, here are other tidbits.

1. If you want someone to talk with professionally in person, Fidelity is another good company, and they have in-person offices. Like Vanguard, they are primarily an investment brokerage (a place that sells investments). They are almost as cheap on fees, but with the advantage of in person consultations available.

2. Vanguard has a service where they will invest for you (effectively, give investment advice) at a lower price than most. It's about .3% of your investment where many advisors cost 1% or something like that. Still expensive compared to coming up the right answer yourself, but if you're truly uncertain, .3% for a good answer could be better than a bad answer for free. Fidelity may have something similar. It's different from them explaining what a given investment does and what it's terms are, which either company will do. Just an option for early stage reassurance.

3. If, to reassure yourself or a parent, you did actually intend to pay for advice, the best route is probably a fiduciary financial advisor with a fixed fee and a legitimate professional certification. You might pay one or two thousand dollars for them to analyze your information, but they would be not taking fees from other parties. If an advisor is not a fiduciary, they can take fees from the investment companies and sell you weaker investments. Fixed fee is probably cheaper in long run than a %.  https://smartasset.com/financial-advisor/certified-financial-fiduciary-cff

4. Doing it on your own like we do here is cheapest and can work great, you just have to learn. Fwiw, Fidelity has an equivalent of just about every Vanguard fund. FSTVX is the Fidelity equivalent of VTSAX.

I don't want to bog you down with choices, just giving you background. VTSAX if your spouse is comfortable is a great way to go if the two of you accept that the price will fluctuate.
 

Tyler118

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Re: Investing help
« Reply #15 on: October 20, 2021, 09:23:38 PM »
Thank you everyone for the great advice!