23 year old new investor looking for valuable wisdom

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sizzlinshred
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23 year old new investor looking for valuable wisdom

Post by sizzlinshred » Thu Nov 14, 2013 3:48 pm

Hello everyone,
I am 23 I want to get started investing

I have $2,000 net worth at the moment, and get paid roughly $800 every 2 weeks.

I just opened up a Vanguard Roth IRA

I was thinking along the lines of a Vanguard retirement 2050 fund?

I'm planning to max out the $5,500 limit before April 15 deadline.

Please everyone and anyone pass on your most valuable wisdom and tips you guys can give.


Just finished Reading "Richest Man in Babylon"

Am now starting "Boglehead's Guide to Investing" and also have "Four Pillars of Investing" too but haven't read it yet.


Thank you

denovo
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Re: 23 year old new investor looking for valuable wisdom

Post by denovo » Thu Nov 14, 2013 6:52 pm

Especially with a small amount of money, it's good to start simple.

That fund is perfect, just be cognizant high stock allocations means you are going to be in for swings, but you are that the age where you can afford . You are in a low tax bracket, so the Roth is an excellent idea, although if you are in a job that has a 401k with match that should be where you start.

At this age, I think the most important things are 1. Avoid getting into debt for stupid things like vacations or nice cars. 2. Save as aggressively as possible, and learn to be frugal in smart ways. 3. Focus on any career development or educational goals so you can boost your long-term income.

berntson
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Re: 23 year old new investor looking for valuable wisdom

Post by berntson » Thu Nov 14, 2013 8:30 pm

This is a great plan. If you have any inclination towards a more hands-on approach, another idea would be to setup a three-fund portfolio using Vanguard ETFs (VTI, VXUS, and BND). This is more or less just holding the pieces in the target retirement accounts. For my own part, I like holding individual funds. It gives you a bit more control over your portfolio allocation, reduces the average expense ratio, and increase tax-loss harvest opportunities (once you have savings in a taxable account). On the other hand, it's hard to beat the simplicity of a target retirement fund. Going with that option would give you more time to focus on other important things.

sizzlinshred
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Re: 23 year old new investor looking for valuable wisdom

Post by sizzlinshred » Thu Nov 14, 2013 9:05 pm

I'm kind of iffy about buying into stocks right now because I have a deep feeling the stock market is going to crash ANY time now.
Especially looking at the last 10 years picture.

@Denovo - My employer has a TSP and a Roth TSP no 401k matching. So just max out the roth?

@Berntson - Sounds like great advice with the three-fund portfolio, but I'll need $9,000 for that?
And is a Thrift savings plan a taxable account?


Thanks guys for the answers, greatly appreciated!

Twins Fan
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Re: 23 year old new investor looking for valuable wisdom

Post by Twins Fan » Thu Nov 14, 2013 9:39 pm

OP, are you in the military? If so, are you going to make a career of it?

The TSP is not a taxable account. It's a tax deferred account where you put pre-tax money in there. The TSP is about the best tax deferred deal going. May want to contribute to that? Depends on some things...

The Roth is a good deal for you also since you are in a VERY low tax bracket now.

You have no control over the market, so don't worry about a crash or the past 10 years. Your timeline for investing is long since you're 23. The market will crash more than a few times over your next 40 years. That's a given. You can control the fees/costs you pay. You're doing well there having picked Vanguard to start your Roth IRA with. Actually, you should welcome a crash. You're just starting out and a crash means you would be able to buy more shares at lower prices. That's only good for you.

I use "crash" loosely here. No set drop in the market.

The target date retirement fund is great for you right now. Probably about all you can buy into anyway since it's only $1000 to start up. That's all you need for now. You can split up to a three fund to run on your own later, if you choose. Just saving and contributing is what's important for you now.

Good job getting started at 23!!

nwffdiver
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Re: 23 year old new investor looking for valuable wisdom

Post by nwffdiver » Thu Nov 14, 2013 11:52 pm

Your young, the TSP. Is the cheapest (401k like) plan there is. Use it, you make a low amount so use the Roth option (as you will most likely make more $ later in life).


I would contribute as much as possible to that. Saving ER costs are the best way to improve ending balances.

Wish I had done it when I was in the military. :confused

berntson
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Re: 23 year old new investor looking for valuable wisdom

Post by berntson » Fri Nov 15, 2013 12:06 am

sizzlinshred wrote:@Berntson - Sounds like great advice with the three-fund portfolio, but I'll need $9,000 for that?


You would need $9,000 if you were purchasing three mutual funds. ETFs work differently--you just need enough to buy the individual shares, which is between $50 and $100 for VTI, VXUS, and BND. The main disadvantage is that you can't buy fractional shares. So you will often end up with money left over after an investment. This is more or less what I did starting out saving $500 a month. Just buying the target retirement fund is a great plan though too. It's less complicated. It really just depends on whether you mostly want simplicity or mostly want experience managing a portfolio with several funds.

sizzlinshred wrote:I'm kind of iffy about buying into stocks right now because I have a deep feeling the stock market is going to crash ANY time now.
Especially looking at the last 10 years picture.


Since you're planning to invest for the rest of your lifetime, you will certainly see several crashes. It's not a matter of if, it's a matter of when. And no one ever sees them coming. The best thing to do is to read as much as you can and convince yourself that staying the course is the best long-term plan.

This may be an advantage of the three-ETF idea. The Vanguard 2050 retirement fund has 90% stocks and 10% bonds. This is entirely reasonable for a young investor from a financial perspective. But it may or may not be reasonable in terms of emotions and experience. You may want more bonds as you start out investing and gain comfort with market losses. As you become more accustomed to watching your portfolio go up and down, you can add bonds.

With an ETF portfolio, you could start out conservatively. Say, 40% bonds and 60% stocks. Then slowly, over the next few years, increase the stocks until you're at something more like 10%/90% or 20%/80%.

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BL
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Re: 23 year old new investor looking for valuable wisdom

Post by BL » Fri Nov 15, 2013 12:08 am

The L fund would be like a Target Retirement fund. You choose the fund that has the desired stock/bond ratio. It is set up to come out of your paycheck.

Here is a summary of TSP in the Wiki: http://www.bogleheads.org/wiki/TSP

denovo
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Re: 23 year old new investor looking for valuable wisdom

Post by denovo » Fri Nov 15, 2013 10:42 am

sizzlinshred wrote:I'm kind of iffy about buying into stocks right now because I have a deep feeling the stock market is going to crash ANY time now.
Especially looking at the last 10 years picture.

@Denovo - My employer has a TSP and a Roth TSP no 401k matching. So just max out the roth?


Hello sizzlinshred,

At the end of 2012, many people were freaking out about the stock market. The payroll tax cut was expiring, a host of spending cuts were hitting the budget, the so-called sequester (as you may well be aware of if you are a member of the armed services), and there was uncertainty about how the expiring tax cuts would be resolved. Many people sold their stocks because of these fears. They were convinced there would be a double-dip recession. People who sold at the end of the year have missed a 25 percent increase in the US Stock Market. The morale of the story is not to worry about when the stock market will go up and down, trying to make predictions about it is a fool's game. Just be cognizant that the stock market will drop by a significant margin sometime in the future, and in fact many times during your investing career. You have to just ride it out.

That being said, I would ignore the advice of using TSP (for now). Even though it is tax-deferred, a roth ira is a better deal because of your tax rate. I guess technically you could do a roth 401k, but you can get a cheap roth IRA through vanguard or tdameritrade with neglible fees, and I have a vendetta against TSP since you can't get exposure to the entire stock market (they exclude emerging markets for no good reason). It would be a different story if you had a match.

I assume you are in the military, since they are the only fed employees i am aware of with no tsp match. A great deal of your investing going forward may hinge on a decision I suspect you will need to make in the near future. Do you want to be part of the military as a career, i.e. get to 20 years where there will be a nice pension waiting for you at your retirement, or do you want to leave when your enlistment expires. If the former, you have the opportunity to save aggressively in your tax-advantaged accounts, which you should take full advantage of. If you plan on leaving, you may want to have a cushion of money sitting in a bank account as you transition into civilian life. I don't know what your educational background is, but I know there are excellent educational benefits available through the updated GI bill.

Grt2bOutdoors
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Re: 23 year old new investor looking for valuable wisdom

Post by Grt2bOutdoors » Fri Nov 15, 2013 11:37 am

You should pray the market crashes several times, if only that you can purchase more and more shares at cheaper and cheaper prices over your lifetime. Save your money to build a base first, to grow it you must invest it - some investments will certainly falter, some will bear abundant fruit, your savings account will just "be there". Fifty years ago, the market was flying (look up "Nifty Fifty") until about 1973-74 bear market (read "oil embargo") which crushed them, if you were there to pick up those investments at $3-$4 a share and hold through 1987,1990/1991 banking debacle, 2000, 2008/2009 you will find all of those investors are well, well ahead of where the market timers and savings account holders are today. You have one thing many folks do not have - Time. Don't squander it trying to pick the next Apple, own the entire market, rebalance once per year and let it ride according to your risk tolerance and asset allocation. Make sure you stop to smell the roses from time to time, one thing you can never get back is "Time". Live by the golden rule, you will be rewarded.

Thank you for your service.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

nash031
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Re: 23 year old new investor looking for valuable wisdom

Post by nash031 » Fri Nov 15, 2013 12:16 pm

sizzlinshred wrote:I'm kind of iffy about buying into stocks right now because I have a deep feeling the stock market is going to crash ANY time now.
Especially looking at the last 10 years picture.

@Denovo - My employer has a TSP and a Roth TSP no 401k matching. So just max out the roth?

@Berntson - Sounds like great advice with the three-fund portfolio, but I'll need $9,000 for that?
And is a Thrift savings plan a taxable account?


Thanks guys for the answers, greatly appreciated!


Personally, I would max my TSP before my IRA. That said, if your IRA is with Vanguard, it's not a tremendous difference, but still a small one. The biggest advantage of TSP, IMO, is that the ERs are the lowest there are. Their L funds are pretty much as good as Vanguard's with some small differences that you shouldn't really care about at 23. Sometime down the road, you're going to love the ability to use the G fund, so more money there now means more that you can put in G later.

Read the Wiki about TSP tax rules. Depends on Traditional or Roth, but generally speaking it is a "tax-deferred" account. My wife and I have Roth IRAs and I have a traditional TSP. Kind of a diversification of accounts because I'm not really sure what my tax situation will be in 20 years.

As I tell anyone who'll listen in the military (I am military), if you're not using your TSP benefit, you're throwing away free money.

Do not, do not, DO NOT worry about what the market is going to do. You're 23. You're not touching that money for a loooooooooong time. So you should be cheering for a market crash - that will allow you to buy stocks at a discount. Get that "worried about a market crash" and any other market timing BS out of your head now. You'll be happy later. Just my $0.02.

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JupiterJones
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Re: 23 year old new investor looking for valuable wisdom

Post by JupiterJones » Fri Nov 15, 2013 12:32 pm

Good for you for actually thinking about this sort of thing at this time in your life!

Just to reiterate what has already been said

A) Despite your feelings of impending doom, the future is not predictable. Maybe there will be a crash, maybe not. Who knows? Invest in such a way that it really doesn't matter either way.

B) Yeah, crashes mean things are on sale. :-) I made out great during the last "crash", and you'll do great during the next one if you stay the course. (As the saying goes, the only people who get hurt on roller-coasters are the ones who jump off in the middle of the ride.)

Take a look at a graph of the S&P 500 during the year 1987:

https://www.google.com/finance?chdnp=1& ... MeSB0QH8NQ

Pretty big crash, eh? Black Monday. Ugh.

But when we zoom out to a 40-year period, it's barely a blip:

https://www.google.com/finance?chdnp=1& ... MeSB0QH8NQ

And decades from now, those big dips during the 2000's will probably look like little blips too. 8-)

Good luck!
Stay on target...

bta15
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Re: 23 year old new investor looking for valuable wisdom

Post by bta15 » Fri Nov 15, 2013 1:21 pm

I would put as much into the Roth TSP as possible. You can put up to $17.5k and it has better investment options with Lower ER's.

sizzlinshred
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Re: 23 year old new investor looking for valuable wisdom

Post by sizzlinshred » Fri Nov 22, 2013 11:51 am

You guys gave me a lot to think about!

I'm going to save really hardcore, 64% of what I make. And max out the $5,500 Roth IRA at the last minute.

Thanks guys

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youngindexer
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Re: 23 year old new investor looking for valuable wisdom

Post by youngindexer » Fri Nov 22, 2013 4:41 pm

Hi sizzle while 64% is an awesome savings rate make sure you leave yourself enough extra cash for fun activities to blow off steam. I am also 23 and try to allocate some cash for a vacation once a year. Great job planning for your future this early!

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