26yrs old and need startup advice

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Playup101
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Joined: Tue Jun 19, 2018 8:06 pm

26yrs old and need startup advice

Post by Playup101 » Tue Jun 19, 2018 8:20 pm

Honestly I've been wanting to invest funds into a roth IRA or something similar to that but am unsure how to. I have no idea how things work even though i have been reading many articles and videos. Can anyone experienced guide me.

I also just got hired for $62k
The company has a 401k plan matching up to 2%
Personal Savings account = $35,000
Cash just sitting at home = $25,000

I've read about robo advisors where it invests money for you. I also read about Vanguard having a VFINX and VFIAX, but i can only deposit $5500 per year. Than there is those who say to invest 100% in stocks but it is so vague and misunderstood because do I just buy stocks and hold them or continuously buy low sell high while accumulating fees. Sorry, I just never received proper guidance, everything i know is basically word of mouth or online. You can see why i am so hesitant and unsure lol. Any help would be amazing even if public or private.

Thanks,
Brooklyn, NY

Blaze93
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Re: 26yrs old and need startup advice

Post by Blaze93 » Tue Jun 19, 2018 10:10 pm

Buying low and selling high is not predictable and can cause more losses than gains. Fund a Roth with things that have high potential gains like stocks/equities.

Most of your allocation should be stock and equities at your age. Just buy and hold. Target retirement —-> total stock market admiral shares and maybe some bonds 80/20 or something similar at 10k

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Duckie
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Re: 26yrs old and need startup advice

Post by Duckie » Tue Jun 19, 2018 10:46 pm

Playup101, welcome to the forum.
Playup101 wrote:I also just got hired for $62k
The company has a 401k plan matching up to 2%
Contribute at least enough to get the full 2% match. Never pass up free money.

What are the options in the 401k plan? List the fund names, ticker symbols, and plan expense ratios. Costs are the first thing we look at so don't skip the expense ratios.
Cash just sitting at home = $25,000
Actual paper cash?
I've read about robo advisors where it invests money for you. I also read about Vanguard having a VFINX and VFIAX, but i can only deposit $5500 per year.
You can only contribute $5500 a year to a Roth IRA. You can contribute up to $18.5K to the 401k plus the match. You can contribute as much as you can afford to a taxable account.

You can open a Roth IRA at any decent brokerage. We usually recommend Vanguard, Fidelity, and Schwab. You can call one of them, and open the account on the phone or even online. Once open you send them a check to get started. The money will go into a cash settlement account. Once there you can invest it in the fund you want. At this stage choose only one fund. Which fund depends on which custodian, how much you've contributed, and what you choose in your 401k. You look at the 401k and Roth IRA as one portfolio.

Playup101
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Re: 26yrs old and need startup advice

Post by Playup101 » Wed Jun 20, 2018 7:16 am

Hey thank you guys for the input. My company does have a 401k and looking at the benefits package it states...
"Comapmy provides a comprehensive 401(k) plan administered by MassMutual. This self-directed plan allows
participants to invest in a number of mutual funds across a variety of fund families including Vanguard, Wells Fargo,
Oppenheimer, American Funds, DFA, T. Rowe Price, PIMCO and J.P. Morgan."

My next step is to open a roth IRA Vanguard account and look into the SP500 index fund or the VFINX. I'm not familiar with which bonds and stocks are good for my situation but to play around I will throw $1000 bucks into a tobo advisory to see how it handles it.
Also Duckie yes, I have $35k in bank savings account that I have my pay deposited into and $25k in emergency fund cash just sitting at home.
Any input or suggestions into what to buy and how would be appreciated.

Liberty1100
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Re: 26yrs old and need startup advice

Post by Liberty1100 » Wed Jun 20, 2018 7:33 am

I think one of your best things you should do is place that $25k in cash into a savings account. Placing it into an account at Ally can get you a rate of 1.65% currently. Otherwise, you are just watching it wither away faster due to inflation and also making it a possible item for theft. With it being in a bank account, you are gaining interest while it is still accessible for those emergencies.

Next, I think you should read more about the simple 3-fund portfolios: https://www.bogleheads.org/wiki/Three-fund_portfolio
They are simple to understand and execute will allowing you to be diverse and earn your share of the market gains.

Saving money is one awesome step you seem to have down. Next step is to learn more about successfully investing those savings. Reading the wiki and this board should help with that.

Chrono Triggered
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Re: 26yrs old and need startup advice

Post by Chrono Triggered » Wed Jun 20, 2018 7:46 am

More often than not, the funds at Vanguard are probably going to be your best bet. Come back to this thread later after you get setup with your 401k at work so you can share with us the exact funds available, and the expense ratios involved.

Personally, if I were you, I would seek to max out the Roth IRA and 401k from the start, using the $60K you have in liquidity to live off so you are effectively transferring the assets from your savings and cash, to your investments.

As for as allocation, you have to do a little reading to see what makes sense, especially if you're risk adverse. You could start off with a 60/40 or 70/30 allocation and see how well you do during the next bear market. If you didn't sell stocks, were eager to buy more shares of stocks, consider bumping up the allocation a bit. 100% stocks at your age will most likely net the highest return, but if you might sell during a bear market, then that allocation is not right for you.

pkcrafter
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Re: 26yrs old and need startup advice

Post by pkcrafter » Wed Jun 20, 2018 8:23 am

Playup101 wrote:
Wed Jun 20, 2018 7:16 am
Hey thank you guys for the input. My company does have a 401k and looking at the benefits package it states...
"Comapmy provides a comprehensive 401(k) plan administered by MassMutual. This self-directed plan allows
participants to invest in a number of mutual funds across a variety of fund families including Vanguard, Wells Fargo,
Oppenheimer, American Funds, DFA, T. Rowe Price, PIMCO and J.P. Morgan."

My next step is to open a roth IRA Vanguard account and look into the SP500 index fund or the VFINX. I'm not familiar with which bonds and stocks are good for my situation but to play around I will throw $1000 bucks into a tobo advisory to see how it handles it.
Also Duckie yes, I have $35k in bank savings account that I have my pay deposited into and $25k in emergency fund cash just sitting at home.
Any input or suggestions into what to buy and how would be appreciated.
Welcome,

The investing priority we recommend is invest in the 401k up to the match, then fund an IRA or Roth IRA. Please list the lower cost (expense ratios) funds you have available in the 401k and we will help you choose. Provide fund name, expense ratio and ticker symbol if available. For a Roth or IRA, Vanguard, Fidelity, and Schwab have low cost index funds and they are the best places to set up IRAs or Roths.

Lots of information in our Wiki--

Getting Started

https://www.bogleheads.org/wiki/Getting_started

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

FIBoston
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Re: 26yrs old and need startup advice

Post by FIBoston » Wed Jun 20, 2018 8:29 am

It's hard to give advice without knowing what funds are available to you in your 401k but I'm going to try:

1. Contribute whatever it takes to get the company match in your 401k
a. Most likely your 401k has an S&P 500 index fund and a Total International Index Fund available. Make sure they are Index funds, and their
expense ratios are low (less than 0.5%). Set your 401k asset allocation to 70% S&P 500/30% Total International.
b. Alternatively, you may have some target date funds in your 401k. These are set to automatically adjust to the correct asset allocation as
you get closer to retirement. Generally they are a bit more expensive than a DIY portfolio but if you have a Target Date fund that has an
expense ratio under 0.5% and has a Target Date of 2060 or later then I would say set your 401k allocation to 100% this.

2. Open a Roth IRA with Vanguard and immediately contribute $5500. This is your total allowed contribution for 2018.
a. 100% of this money should be used to purchase VTSMX. This is Vanguard's Total US Market Index Fund for accounts under $10,000. It gives
you the broadest selection of U.S. stocks at your account level at the chepeast cost. Once you cross $10000 you will be eligible for Admiral
Funds (VTSAX) which are the same exact funds at a lower cost.
b. Alternatively, you could invest 100% in VLXVX. This is Vanguard's 2065 Target Retirement fund. It has the same expense ratio is VTSMX
(VTSAX - the admiral fund version I mentioned above is cheaper). Just like the Target Date fund that may or may not be in your 401k it will
automatically adjust as you get closer to retirement.

3. Go back to your 401k and up your contributions so that you hit the annual max ($18500). Once this money hits your account it will be directed to the investments you picked in either 1a or 1b.

4. Figure out how much cash you need to hold in order to sleep through the night (3 months expenses, 6 months expenses, 1 year expenses etec.) and put that amount in to a high yield savings account (Ally is my bank of choice).

5. Any cash left over you can do one of two things:
a. Open a taxable brokerage account at Vanguard and put 100% of the cash into VTSMX (or VTSAX if it is over $10,000)
b. Open a second savings account and start saving money for a big purchase you want to make (home down payment, new car etc.)

A few notes:

1. If you follow the a. path in steps 1 and 2 you will have no bond exposure and be in 100% equities in your investment accounts. Personally I am okay with this but it's up to you to decide how much bond exposure you want. If you do decide to add bonds, use a low cost bond index fund in your 401k and make sure your SP 500 to International stock ratio is around 70/30.

2. If you follow the b, path you will probably have about 10% bond exposure in your retirement accounts. This is the recommended amount from Vanguard for somebody looking to retire in 2065.

3. Your asset allocation for domestic stocks to international stocks to bonds should be spread through all of your investment accounts. I would take some time to learn more about investing before you start to add international funds to your Roth IRA and Taxable accounts and try to balance your asset allocation across acounts, but just know that you will eventually want to get international exposure in those account using VTIAX. Alternatively, you could hold all of your international stocks in your 401k by upping the percentage there and sticking to only domestic in your Roth IRA and taxable (this only applies if you followed steps 1a and 2a).

4. Stop holding large amounts of physical cash in your home.

5. Rebalance your portfolio once a year. Otherwise, don't bother looking at it or if you do make sure you don't react to what the market is doing.

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vineviz
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Re: 26yrs old and need startup advice

Post by vineviz » Wed Jun 20, 2018 8:41 am

FIBoston wrote:
Wed Jun 20, 2018 8:29 am
It's hard to give advice without knowing what funds are available to you in your 401k but I'm going to try:

1. Contribute whatever it takes to get the company match in your 401k

2. Open a Roth IRA with Vanguard and immediately contribute $5500. This is your total allowed contribution for 2018.

3. Go back to your 401k and up your contributions so that you hit the annual max ($18500). Once this money hits your account it will be directed to the investments you picked in either 1a or 1b.

4. Figure out how much cash you need to hold in order to sleep through the night (3 months expenses, 6 months expenses, 1 year expenses etec.) and put that amount in to a high yield savings account (Ally is my bank of choice).

5. Any cash left over you can do one of two things:
6. Print out this post by FIBoston and put it in your wallet. It's everything you need to know about investing for the next 15 or 20 years.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Playup101
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Joined: Tue Jun 19, 2018 8:06 pm

Re: 26yrs old and need startup advice

Post by Playup101 » Wed Jun 20, 2018 8:52 am

Wow! Guys this is truly priceless!
I will definitely print this out and follow to the end. Any regards to robo advisors even if I just throw $2000 to play around.
Once I get the exact details of my jobs 401k I'll post it.
Thanks once again.

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vineviz
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Re: 26yrs old and need startup advice

Post by vineviz » Wed Jun 20, 2018 9:12 am

Playup101 wrote:
Wed Jun 20, 2018 8:52 am
Any regards to robo advisors even if I just throw $2000 to play around.
You don't need a roboadvisor. At all.

My $0.02? If you want to spend $2,000 on something frivolous, fly to Paris for the weekend.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

pkcrafter
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Re: 26yrs old and need startup advice

Post by pkcrafter » Wed Jun 20, 2018 9:35 am

playup:
My next step is to open a roth IRA Vanguard account and look into the SP500 index fund or the VFINX. I'm not familiar with which bonds and stocks are good for my situation but to play around I will throw $1000 bucks into a robo advisory to see how it handles it.


VFINX is the ticker symbol for investor shares of the S&P500, but using total stock market is a little better. I would not recommend a robo advisor at this time and maybe never.

Have a look at our much recommended 3 fund portfolio.

viewtopic.php?f=10&t=88005

To initially set this up would require money than you may have available, but you can also start with a Target Retirement fund or lifestrategy fund. Both contain the 3 funds and they automatically rebalance. Chose the TR funds by desired asset allocation, not date. A good starting range on asset allocation is 70-80% stock, but allocation varies with each investor. Read up on asset allocation and risk in the wiki.

https://www.bogleheads.org/wiki/Asset_allocation

Target Date funds. (Automatically lower equity amount over time)

https://investor.vanguard.com/mutual-fu ... mpgn=PS:RE

LifeStrategy Funds (fixed allocation)

https://investor.vanguard.com/mutual-fu ... mpgn=PS:RE

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Tamarind
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Re: 26yrs old and need startup advice

Post by Tamarind » Wed Jun 20, 2018 9:55 am

vineviz wrote:
Wed Jun 20, 2018 9:12 am
Playup101 wrote:
Wed Jun 20, 2018 8:52 am
Any regards to robo advisors even if I just throw $2000 to play around.
You don't need a roboadvisor. At all.
Agreed. You will not learn anything from a roboadvisor that you won't learn from following the excellent step-by-step advice above.

You are just getting started. "Playing around" comes later once you have a solid foundation.

I would add one more thing: as much as possible, make all your contributions and investments automatic. This is called "paying yourself first" and has two benefits. 1) It saves you time on managing contributions and investments. 2) It is the best tool for controlling your spending and getting the max return from your future raises.

Traveller
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Joined: Sat Jun 25, 2011 10:47 am

Re: 26yrs old and need startup advice

Post by Traveller » Wed Jun 20, 2018 10:01 am

Give this short booklet a read:
http://www.etf.com/docs/IfYouCan.pdf

AlphaPilot
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Re: 26yrs old and need startup advice

Post by AlphaPilot » Wed Jun 20, 2018 12:29 pm

Playup101 wrote:
Wed Jun 20, 2018 8:52 am
Wow! Guys this is truly priceless!
I will definitely print this out and follow to the end. Any regards to robo advisors even if I just throw $2000 to play around.
Once I get the exact details of my jobs 401k I'll post it.
Thanks once again.
I too have been curious on robo advisors. They are new (or at least becoming MUCH more popular these last 5 years). The two big ones that I have found to be reliable are Betterment and Wealthfront. I put 2k in wealthfront to "play". They have nice advantage over my funds in vanguard and that is that they tax-loss harvest. So they sell off on big losses automatically for me. So far though, in the past 2 months, I have made less than $100 for any gains however I have tax-loss-harvested roughly $130. If you have less than 5k in there, there is no fee for them managing it. You must invite others if you want to have more free managed money (5k per referral that joins. I think this caps at 25k total for no fee) of course they may buy in a fund that has fees which seems silly at that point to be involved at all. But for those who know nothing it's better than a savings account...and that is their appeal, those who know less or go for marketing hype. Other companies that invest "change" from expenses are also a similar mindset, better for those who know nothing. However I have yet to see a free app that invests my change from daily expenses, so in the end you lose profits if you know what you are doing. I think the motive here is to avoid those services until you have maxed out other accounts. Lucky for you, it sounds like you have enough savings and cash to do this. FYI, Discover pays 1.65 and CIT pays 1.85 on savings and money market accounts. Expect 3 to 5 days to fully access your money going either to those online accounts or from them to your local checking account. Other banks offer a debit card with the MMA, and that would work for immediate emergency funds (as long as they are less than your atm limit).

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