Author Topic: New Mustachian Here  (Read 3155 times)

deek

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New Mustachian Here
« on: March 22, 2017, 08:39:20 AM »
Hey all, I just discovered this awesome, informative blog a couple days ago. I'm 25 and have been searching all over for tips on how to start investing. I don't want to work until I'm 65, something that is probably a theme around here. But my big thing right now is income. I'm single, making less than 40k right now, will be more in a year's time hopefully (with possible part time work and raises). I'm having trouble figuring out the best place to put my savings while still having some to spend on fun experiences.

The 25 times rule intrigues me (saving 25 times your annual expenses). But do we really need to live on 100% dividends down the road?

Are there any people here that would recommend the right spot to focus on putting my savings for faster growth since I haven't really started investing yet? All I've got right now is a small chunk of 401k from a previous employer that I haven't transfered into an IRA yet.

I've got a lot of questions, but wanted to start here. Thanks in advance!
« Last Edit: March 22, 2017, 08:41:21 AM by dj »

CowboyAndIndian

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Re: New Mustachian Here
« Reply #1 on: March 22, 2017, 09:29:16 AM »
Welcome to the forum dj. Starting this early means that you will reach FIRE at a very early age.

The 25 times rule intrigues me (saving 25 times your annual expenses). But do we really need to live on 100% dividends down the road?

Growth in your investments could be dividends or growth in the share price or coupons if you invest in bonds. You would keep a mix of investments in your stache (like the old saying, do not put all your eggs in one basket).

So you could spend the dividends, sell shares etc to get your annual expenses. It is not just limited to dividends.

Quote
Are there any people here that would recommend the right spot to focus on putting my savings for faster growth since I haven't really started investing yet? All I've got right now is a small chunk of 401k from a previous employer that I haven't transfered into an IRA yet.

Before you start with investments, I would suggest you do a case study.  Instructions here: https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/


Another good article I suggest is the one on the order of investing https://forum.mrmoneymustache.com/investor-alley/investment-order-65299/

Best of luck in your journey to FIRE.




Scortius

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Re: New Mustachian Here
« Reply #2 on: March 22, 2017, 09:30:12 AM »
Read around the forums and the blog posts a bit more.  A lot of your questions can be answered by reading the stickied posts in most subforums.

You do not need to live on just dividends.  You can sell stock as well to generate income.

Given that you're young and you have a moderate income, your first steps should not be figuring out where to invest.  Number one, you need to track your expenses and figure out how to live a fulfilling life while cutting out your excess consumerism.  Doing that will have a far greater effect on your future than any investment strategy.

Second, given that you're young and have moderate income, your investments should be focused on yourself.  When necessary, spend money and time increasing your career prospects, which should lead to higher paying jobs.

For investing, go to the Inverstor Alley subform and read the stickied posts.  Max out your 401k match.  Put $5,500 a year in an IRA.  Buy low cost index funds and never sell them.

If you follow the general advice you find here, you'll be in great shape.

deek

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Re: New Mustachian Here
« Reply #3 on: March 23, 2017, 02:43:59 PM »
Much appreciated. I'm liking this new idea of saving. I went out on an adventure to Oregon for a year and just got back. Although it drained me, and forced me to put car loan and student loan payments on hold for  a couple months, I'm so glad I went out and did that since I still have plenty of time to save.

Definitely gearing toward a more simplistic lifestyle. So many of my friends just don't understand it. They are always saying things like "well the more I make the more I'm going to spend" like it's just a thing that happens automatically. I can't wrap my mind around that no matter how hard I try. 'Making your money work for you' is such an easy idea to comprehend even after spending 15 minutes doing a little research.

Bracken_Joy

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Re: New Mustachian Here
« Reply #4 on: March 23, 2017, 02:52:50 PM »
Welcome!

Be sure you're not confusing your investing "buckets" (ie IRAs, 401(k)s) with investment types (ex. stocks, bonds). This is a great starting place: http://jlcollinsnh.com/stock-series/ I also recommend the frugalwoods series on demystifying personal finance: http://www.frugalwoods.com/category/demystifying-personal-finance-series/

caracarn

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Re: New Mustachian Here
« Reply #5 on: March 23, 2017, 02:54:04 PM »
It's easy for a lot of us here, but the consumer sukka mentality MMM talks about in a lot of his posts is like a heroine addiction; hard to shake and prone to replapse.  The media very clearly send messages that you NEED this stuff.  Not everyone can ignore it and most can't.  Consider yourself lucky that you see the truth.

In short I'd recommend digging through the blog posts.  I spent 2 1/2 months reading every single article when I first got here.  There are a lot of good ideas there.  You've gotten the response of it does not have to all be dividends.  The reason dividends are suggested is then you are less prone to market fluctuations to maintain the cash flow as dividends do not tend to get changed drastically while a stock may drop 20-30%, their dividend my only drop 2-3% if at all.  Just the reluctance of the board to signal that a ship is sinking. 

I'm pretty conservative and understand slow and steady wins the race.  There is no magic investment to drive you to "faster growth".  Get that consumer sukka thought out of your head.  That's why indexing is highly recommended here.  Study after study prove is to be the best performing option versus chasing the magic dream.  Save as much as you can and be patient.   It will happen.  Find the articles on savings and indexing in the blog if you have not already.  Learn them.  Recite them in your sleep.  Become one with your mustache. 

VolcanicArts

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Re: New Mustachian Here
« Reply #6 on: March 23, 2017, 03:28:16 PM »
Most likely a lot will disagree with me on here but I would not put too much of your stache in the market now as it is due for a major correction. I would find safe plays or more small time entrepreneurial stuff to generate income and wait for a dip. If the employer offers a match though I would put in exactly enough to receive the 401k match. JMO
« Last Edit: March 23, 2017, 03:30:51 PM by VolcanicArts »

deek

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Re: New Mustachian Here
« Reply #7 on: March 23, 2017, 03:49:45 PM »
Most likely a lot will disagree with me on here but I would not put too much of your stache in the market now as it is due for a major correction. I would find safe plays or more small time entrepreneurial stuff to generate income and wait for a dip. If the employer offers a match though I would put in exactly enough to receive the 401k match. JMO

Is indexing funds the safest bet with a market in this condition? Are you saying just keep in a savings account and work on other ventures and wait until the market goes low?

Bracken_Joy

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Re: New Mustachian Here
« Reply #8 on: March 23, 2017, 03:55:59 PM »
Most likely a lot will disagree with me on here but I would not put too much of your stache in the market now as it is due for a major correction. I would find safe plays or more small time entrepreneurial stuff to generate income and wait for a dip. If the employer offers a match though I would put in exactly enough to receive the 401k match. JMO

People will absolutely disagree with you, because mathematically speaking, market timing is a terrible idea.

VolcanicArts

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Re: New Mustachian Here
« Reply #9 on: March 23, 2017, 04:03:20 PM »
Another option in a risky market might be to diversify more with bonds and foreign investments etc.

prognastat

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Re: New Mustachian Here
« Reply #10 on: March 23, 2017, 04:05:44 PM »
Most likely a lot will disagree with me on here but I would not put too much of your stache in the market now as it is due for a major correction. I would find safe plays or more small time entrepreneurial stuff to generate income and wait for a dip. If the employer offers a match though I would put in exactly enough to receive the 401k match. JMO

It is laughable if you think small time entrepreneurial stuff is safer than putting the money in index funds right now. Putting it in index funds is the safe play. Unless you are arrogant enough to think you are the next Warren Buffet I wouldn't try to time the market. People have been saying that the market is in for a correction for years and would have missed out on over 20% of growth if they had listened and not invested when those people told them not to.

Scortius

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Re: New Mustachian Here
« Reply #11 on: March 23, 2017, 04:08:20 PM »
Most likely a lot will disagree with me on here but I would not put too much of your stache in the market now as it is due for a major correction. I would find safe plays or more small time entrepreneurial stuff to generate income and wait for a dip. If the employer offers a match though I would put in exactly enough to receive the 401k match. JMO

The market has been on fire, so it's natural to think it may cool off at some point.  But you are making a very strong claim.  Do you care to back it up with specific analysis?  There are many indications that the market could keep churning at this rate for several more years.  I sure would suck to wait for that dip that when it comes is still well above where we are right now.

deek

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Re: New Mustachian Here
« Reply #12 on: March 24, 2017, 07:38:13 AM »
I have extremely basic knowledge of the stock market, so I'm not about to time it. I'm comfortable with indexing being my first go at investing.

prognastat

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Re: New Mustachian Here
« Reply #13 on: March 24, 2017, 07:43:20 AM »

runewell

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Re: New Mustachian Here
« Reply #14 on: March 24, 2017, 08:01:50 AM »
I have extremely basic knowledge of the stock market, so I'm not about to time it. I'm comfortable with indexing being my first go at investing.

Everyone here has an extremely basic knowledge of the stock market which is why most of us should have most of our money in index funds.

prognastat

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Re: New Mustachian Here
« Reply #15 on: March 24, 2017, 08:04:19 AM »
I have extremely basic knowledge of the stock market, so I'm not about to time it. I'm comfortable with indexing being my first go at investing.

Everyone here has an extremely basic knowledge of the stock market which is why most of us should have most of our money in index funds.

Given the statistical performance most financial specialists/advisors have an extreme basic knowledge of the stock market and should not be choosing investments.

Bracken_Joy

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Re: New Mustachian Here
« Reply #16 on: March 24, 2017, 08:49:25 AM »
I have extremely basic knowledge of the stock market, so I'm not about to time it. I'm comfortable with indexing being my first go at investing.

And even as you learn more, that will evolve from "basic" to "humble understanding", and hopefully you will still have the same answer =)

Seriously, the stock series that prognastat linked is super super helpful to read if you haven't.

caracarn

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Re: New Mustachian Here
« Reply #17 on: March 24, 2017, 09:49:30 AM »
Most likely a lot will disagree with me on here but I would not put too much of your stache in the market now as it is due for a major correction. I would find safe plays or more small time entrepreneurial stuff to generate income and wait for a dip. If the employer offers a match though I would put in exactly enough to receive the 401k match. JMO

This or shifting your investments heavily to bonds as you suggest a few posts down, is a form of market timing in sheep's clothing.  Look at several of the mix return calculations and you'll see the shift between a 80/20 versus a 50/50 portfolio is not that large, so it comes back to it seems you have a very low risk tolerance so your mix should be heavier in bonds perpetually not just in a down market. 

I'd agree with the other posters who indicate that there is always someone going on about a correction, and with proper index investing and continuing to put money in regularly you just get more share to help propel you up as the market goes down.  I keep seeing the Dow 5,000 pop ups predicting gloom and doom regularly.  If that happens does not matter what you are in so I believe most would absolutely disagree with not putting things where your investment strategy has had you placing them before.  We'd recommend picking a strategy that lets you sleep at night and using that without fail.  Your post seems to indicate you've not found that mix for you yet.

Rosy

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Re: New Mustachian Here
« Reply #18 on: March 24, 2017, 03:22:19 PM »
Glad to see you found your way here - welcome to the MMM forum.

prognastad linked to what you need to know to get started. Go ahead and check out all of the various threads to gain a sense of where and what you could improve in your financial world. Join or issue your own challenge in the Throw the Gauntlet thread - it makes the process a lot more fun.

dreaming

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Re: New Mustachian Here
« Reply #19 on: March 26, 2017, 04:17:44 PM »
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PaulMaxime

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Re: New Mustachian Here
« Reply #20 on: March 26, 2017, 07:06:45 PM »
Most likely a lot will disagree with me on here but I would not put too much of your stache in the market now as it is due for a major correction. I would find safe plays or more small time entrepreneurial stuff to generate income and wait for a dip. If the employer offers a match though I would put in exactly enough to receive the 401k match. JMO

This is extremely bad advice.

You are just getting started so nothing that happens now will hurt you all that much. In fact you should be rooting for a huge crash right about now.

But the problem is the timing of it. There's no way you are going to pick both the top and the bottom. I still know people who got out (at or near the bottom) in 2008-2009 who still haven't put their money back in to the market.

Personally, I held on and kept investing right through the financial crisis and my net worth is 5X what it was in 2007. That is true even though I sold a house in Sept 2007 (The very top of the market back then) and put ALL of the profit to work in the market at the worst possible time.

Here's a quote from the great investor Peter Lynch:

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch


This is a good article about Lynch: http://awealthofcommonsense.com/2014/08/peter-lynch-stock-market-losses/


Mustacean

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Re: New Mustachian Here
« Reply #21 on: March 27, 2017, 02:41:04 PM »
If you read jlcollinsnh "Stock Series" as others recommend. And, should you choose to follow his advice you will likely decide to open a IRA at Vanguard. It you do, link this account to your bank account and set it up for automatic withdrawals to coincide with your pay days. Then select an amount to contribute from each paycheck. Even if you start at $25 per pay period just getting started and automating it is the best thing you can do. Then, it is a simple matter to increase your contribution amount whenever you can (i.e. when you find expenses to cut or get an increase in pay).