What advice to give 21 year old?

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TomatoTomahto
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What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 6:49 am

This morning, I got a text from my son. The text reads "I feel like I should be buying more bonds and also have questions about international bonds."

First, a caveat. Yes, this thread appears to be a humble brag, but trust me, I have other kids who remind me that I'm an imperfect parent, that my lessons haven't always been internalized, and that we have a lot of work to do before we rest. My other kids are not at a stage where investment options are a meaningful topic. Some day they will be. Fingers crossed.

Situation: My son is a college senior, graduating this year. He has a number of post graduation options. I don't think the odds of his going for a PhD exceed 5-10%. If he goes into industry, he will be making between $150k and $250k, with an unknown ceiling after his first couple of years. He has had increasingly well paying internships (and on campus jobs), and we've come to an agreement that he should pay for his "extras," like taking a trip with his GF, but that we would cover his living expenses just as though he didn't have a job; this is not a hardship for us, and I like the idea that he gets to see his accounts grow. [Please, no tangential discussions about how we're spoiling him, not forcing him to have skin in the game, etc.]

He has maxed out his IRA Roth for the two years he's been eligible to do so (invested in PRIMECAP), and has maxed out his taxable that can be invested in PRIMECAP (he's grandfathered into the closed fund). The remainder of his taxable account, not much, is in Total Stock Market.

So, here are some thoughts on what I'll say to him:

- I don't see the need for international bonds at all. Bonds, if you're going to have them in your portfolio, are there to provide stability. International bonds don't do that, imo, as well as US bonds. Keep your risk in equities.

- Your human capital so far exceeds your investment assets that a bond position would be decimal dust.

- You won't need this money for quite some time, possibly not until you retire, so who cares if it goes down 50% at some point? Would you really rebalance on the way down? You should hope for substantial corrections in the future; you have the ability to buy more equities when they're on sale, just keep buying a fixed $ amount every month, regardless of price level.

Anyway, this somewhat goes against my own investment decisions, but I think it's appropriate advice for a 21 year old. Yes?

mortfree
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Re: What advice to give 21 year old?

Post by mortfree » Fri Jul 14, 2017 6:54 am

I would tell him what you posted above... I agree he doesn't really need bonds. his cash savings could be considered bonds, in a non-investment way.

but I'd also mention the lifestrategy growth fund or a target fund since he did ask. it might appeal to his desire to have bonds at a low percent.

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Re: What advice to give 21 year old?

Post by why3not » Fri Jul 14, 2017 7:02 am

I probably didn't read closely enough but it appears these are RothIRA & taxable accounts? Is it possible he is looking at getting married, buying a house, etc in the next few years? If so, he may be right. If all of this is earmarked for 40+ years from now, have him read JLCollinsNH stock series & then discuss with him.

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Re: What advice to give 21 year old?

Post by miamivice » Fri Jul 14, 2017 7:09 am

TomatoTomahto wrote:If he goes into industry, he will be making between $150k and $250k, with an unknown ceiling after his first couple of years.
Out of curiosity, what kind of job pays between $150k and $250k for a fresh out of undergrad student?

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Re: What advice to give 21 year old?

Post by jbolden1517 » Fri Jul 14, 2017 7:10 am

Bonds don't have to be just for safety they can also be an investment. The other possibility is to put him in risk appropriate bonds. For example I'm in WisdomTree's High Yield negative duration so I'm taking on lots of credit risk but short duration risk. Take on a diversified portfolio of high risk bonds paying a lot and not use the bonds as a cushion. I personally don't like mainstream bonds at all right now, but that's not to say bonds are never a good idea. He just needs to have appropriate risks in his bond portfolio.

As for rebalancing on the way down. There is probably no better favor you could do him at 21 then having him have to make those choices in real time with real money, see for himself what he does and learn from it.

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Re: What advice to give 21 year old?

Post by indexonlyplease » Fri Jul 14, 2017 7:12 am

First great parents. I am doing the same for my 21 yr son. He is in college and works part time. We max out his Roth IRA with a match. He puts in 200 a month we put in 250. Yes he get all living expenses paid for. Mom likes it that way.

We decided on the Vanguard Target Dated Fund 2060. Because he is busy with life and no time to worry about the market. Or even more no time to learn now. The Target funds only has 10% bonds for the next 15 yrs I believe. 10% not going to make much of a differnce they say here.

The best is I don't get discussion from him now about the market. Again, just noise like they say. At 21 school, work and enjoy life. Also, learn a lot about investing before making decisions is best for him. I am sure this will come onece he get settled into the job.

For him now I think of it this way: The Pros at Vanguard state this is the AA and fund choices and % in the Target Fund that good for him at 21. How can we know any better.
Last edited by indexonlyplease on Fri Jul 14, 2017 7:15 am, edited 1 time in total.

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Re: What advice to give 21 year old?

Post by indexonlyplease » Fri Jul 14, 2017 7:13 am

mortfree wrote:I would tell him what you posted above... I agree he doesn't really need bonds. his cash savings could be considered bonds, in a non-investment way.

but I'd also mention the lifestrategy growth fund or a target fund since he did ask. it might appeal to his desire to have bonds at a low percent.

+1

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Re: What advice to give 21 year old?

Post by getco » Fri Jul 14, 2017 7:25 am

Tomahto,

I've seen it posted here that changes to AA should be contemplated with extreme care, lest we rationalize market timing. Is your son contemplating more bonds because the market is 'frothy'? This may be a great opporotunity to discuss asset allocation, and more importantly, choosing an allocation he can stick with, and aligns with his short and long-term goals.

-g

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Re: What advice to give 21 year old?

Post by MikeG62 » Fri Jul 14, 2017 7:27 am

Based upon his age and future earning potential, I think he should be 100% in equities with his current savings (as he can ride out any reasonable downturn) - at least for the portion of his savings that he does not need for shorter term cash needs.

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TomatoTomahto
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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 7:36 am

why3not wrote:I probably didn't read closely enough but it appears these are RothIRA & taxable accounts? Is it possible he is looking at getting married, buying a house, etc in the next few years? If so, he may be right. If all of this is earmarked for 40+ years from now, have him read JLCollinsNH stock series & then discuss with him.
He might marry, but re buying a house, my advice to him, and more generally to young people, is to rent and wait. I think some kids buy into the "adulting" of home ownership, and undervalue the geographical liquidity that renting provides. That's my advice, but we will have to see if takes it.

I will look into JLCollins; a quick Google looks promising.

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TomatoTomahto
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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 7:40 am

miamivice wrote:
TomatoTomahto wrote:If he goes into industry, he will be making between $150k and $250k, with an unknown ceiling after his first couple of years.
Out of curiosity, what kind of job pays between $150k and $250k for a fresh out of undergrad student?
At his request, I can only discuss this vaguely, but he has skills in software development and market making.

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 7:50 am

jbolden1517 wrote:Bonds don't have to be just for safety they can also be an investment.You might be right, but that's not advice I would give, as it is contrary to my view of bonds' place in a portfolio.
The other possibility is to put him in risk appropriate bonds. For example I'm in WisdomTree's High Yield negative duration so I'm taking on lots of credit risk but short duration risk. Take on a diversified portfolio of high risk bonds paying a lot and not use the bonds as a cushion. I personally don't like mainstream bonds at all right now, but that's not to say bonds are never a good idea. He just needs to have appropriate risks in his bond portfolio.Well, that might work for you, and that might be advice that you'd give your child, but I would be uncomfortable doing so.

As for rebalancing on the way down. There is probably no better favor you could do him at 21 then having him have to make those choices in real time with real money, see for himself what he does and learn from it.Funnily enough, I think his risk assessment skills are being developed at the poker table :oops: Somehow he became a very good poker player. It's relatively low stakes, but enough to make it matter. He has tried to describe his thought processes to me (who doesn't get it), but I'm convinced that he's very aware and self observant. I think it will benefit him later as an investor.

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Re: What advice to give 21 year old?

Post by Mr.BB » Fri Jul 14, 2017 7:52 am

MikeG62 wrote:Based upon his age and future earning potential, I think he should be 100% in equities with his current savings (as he can ride out any reasonable downturn) - at least for the portion of his savings that he does not need for shorter term cash needs.
+1. and make sure he has started an emergency fund.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 7:56 am

mortfree wrote:I would tell him what you posted above... I agree he doesn't really need bonds. his cash savings could be considered bonds, in a non-investment way.

but I'd also mention the lifestrategy growth fund or a target fund since he did ask. it might appeal to his desire to have bonds at a low percent.
It doesn't matter much now, as his marginal tax rate is low, but he will very shortly be in a very different tax bracket. 10% bonds won't kill him tax wise, but his mathematical nature will probably not be pleased with that drag on performance. So, I think that the ability to transfer to tax free bonds down the road would be a plus that he wouldn't want to give up.

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Re: What advice to give 21 year old?

Post by OnTrack2020 » Fri Jul 14, 2017 8:13 am

We have a 19-year-old (and 3 other children), soon to be college sophomore, who I have tried many years to give financial advice to...he's more interested in spending than saving at this point, but he's starting to listen more.

I've tried to do my best to tell him to start saving while young, because by the time you get to be 50, health problems tend to creep up on a person, plus typically around age 55, people start to think about retiring. Right now, he doesn't really have the income due to part-time work and college expenses.

Like you, I would not recommend international bonds. I'm not sure that the vast majority of young people delve deeply or "look" into their financial future and investing, nor do they give any consideration to rebalancing, so I do think that guiding him to a fund where it automatically rebalances over the years would be a good idea. I know for our son that is what we will recommend when he graduates.

Yes, definitely get them into the habit of investing every month, every paycheck, etc. Then it just becomes a normal routine and a person doesn't even think about it. I would love to be able to purchase PRIMECAP.

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Re: What advice to give 21 year old?

Post by KlangFool » Fri Jul 14, 2017 8:21 am

OP,

What does your son know about Asset Allocation? I would start him with the "Four Pillars of Investing".

He will make a lot of money. As long as he saves and invests a lot of those earning, he will do very well. He should not spend time nick picking International bond and so on. In fact, he should invest in Life Strategy Growth fund and go on with his life.

You are giving tactical advice. IMHO, you should give strategic advice instead.

KlangFool

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TomatoTomahto
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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 8:32 am

OnTrack2020 wrote:We have a 19-year-old (and 3 other children), soon to be college sophomore, who I have tried many years to give financial advice to...he's more interested in spending than saving at this point, but he's starting to listen more.Funny that, so is my 19 year old :D

Like you, I would not recommend international bonds. I'm not sure that the vast majority of young people delve deeply or "look" into their financial future and investing, nor do they give any consideration to rebalancing, so I do think that guiding him to a fund where it automatically rebalances over the years would be a good idea. That advice would work for my other 3 kids. He is one to pay close attention, which he already does, to his account.I know for our son that is what we will recommend when he graduates.

Yes, definitely get them into the habit of investing every month, every paycheck, etc. Then it just becomes a normal routine and a person doesn't even think about it. That's part of why I haven't made him use much of his earnings for living expenses. He sends his money off to Vanguard with glee. Of course, that's much more fun when the market is going up, but I don't think he'll change much when it goes down; he's been trained to enjoy buying at a discount. I would love to be able to purchase PRIMECAP.We have been happy with our returns on PRIMECAP. As the joke goes, don't count next week yet.

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Re: What advice to give 21 year old?

Post by MoonOrb » Fri Jul 14, 2017 8:35 am

It won't matter much either way to a person his age. I'd tell him to stick it all in a target date fund and worry about it later when he's ready.

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 8:36 am

KlangFool wrote:OP,

What does your son know about Asset Allocation? I would start him with the "Four Pillars of Investing".I don't know how much he's read of it, but the book is on his nightstand. He apparently understands the basics of AA, at least in theory. He is not convinced of the efficiency of markets, but is willing to say that it's close enough for government work.

He will make a lot of money. As long as he saves and invests a lot of those earning, he will do very well. He should not spend time nick picking International bond and so on. In fact, he should invest in Life Strategy Growth fund and go on with his life.

You are giving tactical advice. IMHO, you should give strategic advice instead. I'm not sure what that means. My strategic advice, such as it is, probably falls more into the lifestyle and values area.

KlangFool

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Re: What advice to give 21 year old?

Post by KlangFool » Fri Jul 14, 2017 8:44 am

TomatoTomahto wrote:
KlangFool wrote:OP,

What does your son know about Asset Allocation? I would start him with the "Four Pillars of Investing".I don't know how much he's read of it, but the book is on his nightstand. He apparently understands the basics of AA, at least in theory. He is not convinced of the efficiency of markets, but is willing to say that it's close enough for government work.

He will make a lot of money. As long as he saves and invests a lot of those earning, he will do very well. He should not spend time nick picking International bond and so on. In fact, he should invest in Life Strategy Growth fund and go on with his life.

You are giving tactical advice. IMHO, you should give strategic advice instead. I'm not sure what that means. My strategic advice, such as it is, probably falls more into the lifestyle and values area.

KlangFool
TomatoTomahto,

In my opinion, he should pick an AA between 75/25 and 25/75. Then, he should save and invest a lot of his earning. After that, he does not need to know and care about the bond, international bond, and so on.

<< The text reads "I feel like I should be buying more bonds and also have questions about international bonds.">>

He needs advice on how to think about setting his AA. I would suggest that he read the 4 pillars book in order to get a complete picture. As opposed to a specific opinion about the bond and international bond.

I prefer to teach my children to think and come up with their opinion and approach.

KlangFool
Last edited by KlangFool on Fri Jul 14, 2017 12:44 pm, edited 1 time in total.

WildBill
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Re: What advice to give 21 year old?

Post by WildBill » Fri Jul 14, 2017 9:20 am

Howdy

My kids are sort of in the same boat. I have had this discussion with them several times.

They are young and overwhelmingly their assets are human capital, with high earning potential in science and CS related fields, including opportunities in startups and other high-risk high- return opportunities.

That said, there is also great opportunity in starting an investment program early to maximize time in investment.

So the decision is sort of bifurcated - put half , and as much as possible in Roths, into an aggressive portfolio for maximum growth over time, such as an aggressive Life Strategy fund or just VTSMX.

Put the other half into stable money that will fund a business startup or pay one or two years living expenses while working on a startup company or even taking a year off to travel the world. I would happily support any of these.

Just as a side note, one of the posters asked about earning potential for a fresh graduate - there are select summer internships for CS and mathematics students that pay in excess of $15k per month, usually with room and board provided. A "routine" internship can easily pay over 8k per month, again with room and board provided.

A new software engineer at a technology company will easily make in excess of $150K per year, not counting benefits and retirement plan contributions and matching, which will, add another $20 k or more.

Not their father's world when he graduated. :shock:

Don't let 'me grow up to be cowboys , let 'em be AI and CS and such

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Re: What advice to give 21 year old?

Post by flamesabers » Fri Jul 14, 2017 9:53 am

OP,

I don't think there is anything wrong with a 21 year old having a portfolio of 100% equities. The big question though is does he have the risk tolerance for such a portfolio? I think the fact he feels he should have more bonds suggests a 100% equity portfolio isn't for him. Even though he's young enough to ride out the ups and downs of the market, perhaps he feels the risks of a 100% equity portfolio is too much for his liking?

I do agree with going for domestic bonds over international bonds. Since he's going to be in a high tax bracket once he finds a job in his industry, it's probably best if he could put a bond fund in a tax-advantaged account.

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 10:01 am

WildBill wrote:Don't let 'me grow up to be cowboys , let 'em be AI and CS and such
Amen brother! :D

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 10:10 am

flamesabers wrote:OP,

I don't think there is anything wrong with a 21 year old having a portfolio of 100% equities. The big question though is does he have the risk tolerance for such a portfolio? I think the fact he feels he should have more bonds suggests a 100% equity portfolio isn't for him. Even though he's young enough to ride out the ups and downs of the market, perhaps he feels the risks of a 100% equity portfolio is too much for his liking?I think he's fine with the risk. I think it's a bit like thinking that he should buy a house; it's what one does when one becomes an adult; it's what his parents did. I think that he sees me with a significant bond allocation, and thinks that maybe he's "supposed" to have some bonds. I will have the risk tolerance discussion with him when he's local again (he's in a different time zone right now, which I hate for phone calls).

I do agree with going for domestic bonds over international bonds. Since he's going to be in a high tax bracket once he finds a job in his industry, it's probably best if he could put a bond fund in a tax-advantaged account.He's got good job offers now, but will probably want to travel the world for a few months after graduation. 2017 might be his last 15% tax bracket year.

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Re: What advice to give 21 year old?

Post by Grt2bOutdoors » Fri Jul 14, 2017 11:20 am

Tell him no more than 10% and included in that 10% is his vacation fund, e-fund, car fund, dry powder for house fund. The world is his oyster.
At his age, I had a small savings account, the rest was invested (as meager a sum it was back then).
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Re: What advice to give 21 year old?

Post by Engineer250 » Fri Jul 14, 2017 11:32 am

WildBill wrote: Just as a side note, one of the posters asked about earning potential for a fresh graduate - there are select summer internships for CS and mathematics students that pay in excess of $15k per month, usually with room and board provided. A "routine" internship can easily pay over 8k per month, again with room and board provided.

A new software engineer at a technology company will easily make in excess of $150K per year, not counting benefits and retirement plan contributions and matching, which will, add another $20 k or more.
What? Where is this, the bay area?

New software engineers in my neck of the woods (and I am still in California) make $60-$80k.

I'm not sure if I'm missing something, or ya'll have no actual evidence of this yet (your kids haven't graduated, you are just assuming future salaries). Sure if your kid created his own app and business while he's still in college he might command more, but I'm not sure where you're getting these numbers from.
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Re: What advice to give 21 year old?

Post by WildBill » Fri Jul 14, 2017 12:32 pm

Engineer250 wrote:
WildBill wrote: Just as a side note, one of the posters asked about earning potential for a fresh graduate - there are select summer internships for CS and mathematics students that pay in excess of $15k per month, usually with room and board provided. A "routine" internship can easily pay over 8k per month, again with room and board provided.

A new software engineer at a technology company will easily make in excess of $150K per year, not counting benefits and retirement plan contributions and matching, which will, add another $20 k or more.
What? Where is this, the bay area?

New software engineers in my neck of the woods (and I am still in California) make $60-$80k.

I'm not sure if I'm missing something, or ya'll have no actual evidence of this yet (your kids haven't graduated, you are just assuming future salaries). Sure if your kid created his own app and business while he's still in college he might command more, but I'm not sure where you're getting these numbers from.
Howdy

Somebody may be out of touch with the situation, but I do not think it is me.

The figures I am quoting are from offer letters I have seen with my own eyes. You can also check Glassdoor or other employment sites.

One example:

Software development engineer for Gxxxx: Starting salary $115,000, signing bonus $25000, annual bonus (essentially guaranteed) $20,000, retirement contributions $12000.

Happy coding

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

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TomatoTomahto
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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 12:33 pm

Grt2bOutdoors wrote:Tell him no more than 10% and included in that 10% is his vacation fund, e-fund, car fund, dry powder for house fund. The world is his oyster.
At his age, I had a small savings account, the rest was invested (as meager a sum it was back then).
I will tell him vacation fund and e-fund. Today's kids don't want a car (in the city anyway, with Uber and Zip) and a house fund I'm actively discouraging. At his age, I had zero net worth, and my idea of an emergency fund was being a few weeks ahead of the rent.

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 12:39 pm

Engineer250 wrote: What? Where is this, the bay area?
New software engineers in my neck of the woods (and I am still in California) make $60-$80k.
I'm not sure if I'm missing something, or ya'll have no actual evidence of this yet (your kids haven't graduated, you are just assuming future salaries). Sure if your kid created his own app and business while he's still in college he might command more, but I'm not sure where you're getting these numbers from.
As WildBill says, I've seen this. My son had internships at the upper end of the scale, and has had standing job offers for those kinds of numbers. They are offers with the proviso that "as long as you stay on this course." I guess they don't want him switching major to Underwater Basket Weaving, or stumbling along with a 2.0 GPA. The jobs are mostly around NYC.

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Re: What advice to give 21 year old?

Post by aristotelian » Fri Jul 14, 2017 1:22 pm

I think 10-20% bonds would be reasonable. One, a small bond allocation would give him some funds available for rebalancing in the event of a bear market. Two, having some bonds will give him a natural incentive to learn about how bonds work, how they do and do not interact with the stock market, etc.

I would not pressure him to be 100% stock if he is looking to reduce risk. Otherwise it will be your fault when the inevitable bear market hits.

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Re: What advice to give 21 year old?

Post by Grt2bOutdoors » Fri Jul 14, 2017 1:23 pm

TomatoTomahto wrote:
Engineer250 wrote: What? Where is this, the bay area?
New software engineers in my neck of the woods (and I am still in California) make $60-$80k.
I'm not sure if I'm missing something, or ya'll have no actual evidence of this yet (your kids haven't graduated, you are just assuming future salaries). Sure if your kid created his own app and business while he's still in college he might command more, but I'm not sure where you're getting these numbers from.
As WildBill says, I've seen this. My son had internships at the upper end of the scale, and has had standing job offers for those kinds of numbers. They are offers with the proviso that "as long as you stay on this course." I guess they don't want him switching major to Underwater Basket Weaving, or stumbling along with a 2.0 GPA. The jobs are mostly around NYC.
My wild guess is in hedge fund quant shops and/or investment houses. But I could be far far off......who knows.
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Re: What advice to give 21 year old?

Post by staythecourse » Fri Jul 14, 2017 1:35 pm

TomatoTomahto wrote: - Your human capital so far exceeds your investment assets that a bond position would be decimal dust.
My advice to your son is the same as it is to ANY young investor... Don't worry about investing. It really doesn't matter. What does matter is SAVING. That means get the highest paid job you can in whatever you like AND LBYM. The end results in savings.

Asset allocation doesn't matter AT ALL at this point. 20% of 5k doesn't matter if it is in bonds, international bonds, or baseball cards. Saving is what should be the focus. The hardest part even if it is a well raised young adult (as your child is) is when folks start making money for the first time they will/ may surprise you on how lavish they really want to be.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: What advice to give 21 year old?

Post by Grt2bOutdoors » Fri Jul 14, 2017 1:35 pm

TomatoTomahto wrote:
Grt2bOutdoors wrote:Tell him no more than 10% and included in that 10% is his vacation fund, e-fund, car fund, dry powder for house fund. The world is his oyster.
At his age, I had a small savings account, the rest was invested (as meager a sum it was back then).
I will tell him vacation fund and e-fund. Today's kids don't want a car (in the city anyway, with Uber and Zip) and a house fund I'm actively discouraging. At his age, I had zero net worth, and my idea of an emergency fund was being a few weeks ahead of the rent.
My net worth was also teetering into negative net worth as student debt loomed large right around that age.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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TomatoTomahto
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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 4:20 pm

staythecourse wrote:
TomatoTomahto wrote: - Your human capital so far exceeds your investment assets that a bond position would be decimal dust.
My advice to your son is the same as it is to ANY young investor... Don't worry about investing. It really doesn't matter. What does matter is SAVING. That means get the highest paid job you can in whatever you like AND LBYM. The end results in savings.He's a natural born saver, almost to a fault.

Asset allocation doesn't matter AT ALL at this point. 20% of 5k doesn't matter if it is in bonds, international bonds, or baseball cards. I take your point, but in the interests of accuracy, at the end of the summer I expect that he will have something like $75k in his accounts. I no longer have his account login, but between being a saver and PRIMECAP's results, that's my guess.Saving is what should be the focus. The hardest part even if it is a well raised young adult (as your child is) is when folks start making money for the first time they will/ may surprise you on how lavish they really want to be.It would really surprise me if he went lavish. He wants to be financially independent, sooner rather than later, and he knows that he can't spend lavishly and accomplish that.

Good luck.
Last edited by TomatoTomahto on Fri Jul 14, 2017 8:19 pm, edited 1 time in total.

staythecourse
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Re: What advice to give 21 year old?

Post by staythecourse » Fri Jul 14, 2017 7:56 pm

TomatoTomahto wrote:My advice to your son is the same as it is to ANY young investor... Don't worry about investing. It really doesn't matter. What does matter is SAVING. That means get the highest paid job you can in whatever you like AND LBYM. The end results in savings.He's a natural born saver, almost to a fault.

Asset allocation doesn't matter AT ALL at this point. 20% of 5k doesn't matter if it is in bonds, international bonds, or baseball cards. I take your point, but in the interests of accuracy, at the end of the summer I expect that he will have something like $75k in his accounts. I no longer have his account login, but between being a saver and PRIMECAP's results, that's my guess.Saving is what should be the focus. The hardest part even if it is a well raised young adult (as your child is) is when folks start making money for the first time they will/ may surprise you on how lavish they really want to be.It would really surprise me if he went lavish. He wants to be financially independent, sooner rather than later, and he knows that he can't spend lavishly and accomplish that.

Good luck.
Great to hear. If I raise kids who are financially responsible I will be happy. Kudos.

In this credit full environment kids are raised in the last 20 years I think it has ultimately influenced how their brains view money. I'm afraid they view money they have in their wallets/ purse the same as that they have access to by credit cards. Being financial responsible I think at his age is a reflection of values he learned while growing up and you have every right to be proud of that.

Money comes and money goes, but strong character will always carry him through.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: What advice to give 21 year old?

Post by miamivice » Fri Jul 14, 2017 8:04 pm

I think the best advice you can give him is to do his research, develop his thought pattern about investing, and yes, to save.

As an example, when I was 21, I subscribed to Money magazine. I didn't know much about investing but it had a lot of helpful information. I read the articles and developed what I thought was a good strategy for me. (Dollar cost average, automatic investing on a monthly basis, index funds in lieu of active managed funds or individual stocks). As it turns out, my father, whom I deeply respect, doesn't agree with this strategy. He has a different investment strategy. But he is okay with mine because he knows that I am the one that needs to figure out what works best for me.

So, I would encourage your son to do his homework, do his research, and decide what he thinks the best way to invest is based on his outlook on the world.

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Re: What advice to give 21 year old?

Post by Pylo » Fri Jul 14, 2017 8:11 pm

I'd tell him to go have a beer. Sounds like his financial worries are a thing of the past.

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Fri Jul 14, 2017 8:18 pm

staythecourse wrote:Great to hear. If I raise kids who are financially responsible I will be happy. Kudos
I would love to accept the kudos, but the engineer in me suffers from the engineer's curse, pathological honesty. My youngest, 19 yo now, has some more growing up to do before he becomes financially responsible. But, he's a good kid, and he will eventually get there. He just has to follow the example of his older siblings. :sharebeer

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Re: What advice to give 21 year old?

Post by staythecourse » Fri Jul 14, 2017 10:13 pm

TomatoTomahto wrote:
staythecourse wrote:Great to hear. If I raise kids who are financially responsible I will be happy. Kudos
I would love to accept the kudos, but the engineer in me suffers from the engineer's curse, pathological honesty. My youngest, 19 yo now, has some more growing up to do before he becomes financially responsible. But, he's a good kid, and he will eventually get there. He just has to follow the example of his older siblings. :sharebeer
Thanks for quickly reminding me raising kids will never be done. :D

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

chinto
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Re: What advice to give 21 year old?

Post by chinto » Fri Jul 14, 2017 11:52 pm

I think the definitive answer was given in 1896 by a Shropshire Lad: Alfred Edward Housman in the form of a poem entitled: When I was One and Twenty.

Enjoy...

When I was one-and-twenty
I heard a wise man say,
‘Give crowns and pounds and guineas
But not your heart away;
Give pearls away and rubies
But keep you fancy free.’
But I was one-and-twenty,
No use to talk to me.
When I was one-and-twenty
I heard him say again,
‘The heart out of the bosom
Was never given in vain;
‘Tis paid with sighs a plenty
And sold for endless rue.’
And I am two-and-twenty,
And oh, ‘tis true, ‘tis true.

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Re: What advice to give 21 year old?

Post by Miriam2 » Sat Jul 15, 2017 3:15 am

chinto wrote:I think the definitive answer was given in 1896 by a Shropshire Lad: Alfred Edward Housman in the form of a poem entitled: When I was One and Twenty. . . . Enjoy...
Very nice poem Chinto, thanks for sharing :happy

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stemikger
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Re: What advice to give 21 year old?

Post by stemikger » Sat Jul 15, 2017 4:47 am

I think you have given him great advice.

I would also have him read Jim Collins book The Simple Path to Wealth. This book started as a letter to Jim's own 21 year old daughter and how he wanted to teach her about investing.

I would also have him read one of Warren Buffett's annual letters (sorry I don't have the date). I believe it might have been 2013 where Warren talks about risk of losing purchasing power is far greater than the risk of losing 50% in the market.

Good Luck, sounds like you have a great young man on your hands.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: What advice to give 21 year old?

Post by GoldenFinch » Sat Jul 15, 2017 6:06 am

staythecourse wrote:
TomatoTomahto wrote: - Your human capital so far exceeds your investment assets that a bond position would be decimal dust.
My advice to your son is the same as it is to ANY young investor... Don't worry about investing. It really doesn't matter. What does matter is SAVING. That means get the highest paid job you can in whatever you like AND LBYM. The end results in savings.

Asset allocation doesn't matter AT ALL at this point. 20% of 5k doesn't matter if it is in bonds, international bonds, or baseball cards. Saving is what should be the focus. The hardest part even if it is a well raised young adult (as your child is) is when folks start making money for the first time they will/ may surprise you on how lavish they really want to be.

Good luck.
I completely agree with staythecourse. You can make a lot or not much, but what you end up with mostly depends on what you socked away. Everyone here knows those "early years" of savings can really make a difference later on regardless of how the money was invested. The focus should be on establishing the savings habit.

As an aside, a micromanaging Boglehead runs the risk of raising a micromanaging Boglehead offspring who gets too caught up in the micromanagement of money at a young age when they should be focusing on other things. A balanced "set it and forget it" approach might be advisable at this age. :wink:

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Sat Jul 15, 2017 6:53 am

@chinto: too late! He's given his heart away, and the families (his and hers) hope that they can figure out the two-body problem. Thanks for the wonderful poem.

That raises a topic that's more often discussed at home than AA: how to deal with income disparity in the cohort. His GF, for example, is a wonderful young woman, smart and earnest, and would be as happy with him in graduate school (poor-ish) as in tech (rich-ish); she knows who he is. Some acquaintances have become overly friendly, having found out that he's interning at what they refer to as "the God tier." It is disconcerting to him. As he puts it, one good side effect of LBYM is that people won't know your means, but he often discusses how far you should go in hiding it; at what point does it go from modesty to deceit?

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Sat Jul 15, 2017 7:15 am

GoldenFinch wrote:As an aside, a micromanaging Boglehead runs the risk of raising a micromanaging Boglehead offspring who gets too caught up in the micromanagement of money at a young age when they should be focusing on other things. A balanced "set it and forget it" approach might be advisable at this age. :wink:
GoldenFinch, your laser is well focused today.

In this thread viewtopic.php?f=1&t=215177, I dealt with a desire to get away from micro-managing our AA. I no longer track AA, in the percentage style, and have what I consider to be "sufficient bonds." Sort of like the answer customers got (in the good old days) when asking a Rolls Royce salesman: "how many horsepower does it have?" Answer: "Sufficient." New money goes into PRIMECAP, TSM, and TISM.

But, he is who he is, and his career appears to begin in mathematical finance, so he's bound to examine his portfolio more than perhaps he should.

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Re: What advice to give 21 year old?

Post by SimplicityNow » Sat Jul 15, 2017 7:17 am

I think the best part of this thread is that he seeks out and values your advice. I also (from what little I can surmise from reading your description of him) think he will make his own decision regarding this. Fostering continued discussion will be of greater value then any opinion on bond allocation you give him.

My oldest is a year out of college but unlike yours she has chosen to pursue a career involving arts administration with a lot less earning potential.

That said she has patiently listened to my investing advice. I got her started with Dr. Bersntein's "If You Can" and she is gradually making her way through his recommended reading list (I think she just finished the books on the Great Depression and Devil Takes the Hindmost). I felt with her future income on the lower end of the scale this education was even more important.

While she doesn't have the interest your son has in investing she got the message about financial independence and retirement and has contributed money she earned from her internships into a Roth. She is 100% stock (VTSAX). Other then her EF this is what I will continue to recommend at her age.

I wish him the best of luck.

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Sat Jul 15, 2017 7:25 am

SimplicityNow wrote:I wish him the best of luck.
Thank you. I wish the same for your daughter. Isn't it a treat when they achieve liftoff?

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Re: What advice to give 21 year old?

Post by RRAAYY3 » Sat Jul 15, 2017 9:02 am

21 year olds shouldn't even be thinking about bonds ... I'm 32 and every dollar I have is either invested in total us / Total int'l ... or a high yield savings account - "safely" growing while giving me the opportunity to pounce on the next buying opportunity with 2 clicks

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Re: What advice to give 21 year old?

Post by TomatoTomahto » Sat Jul 15, 2017 9:13 am

RRAAYY3 wrote:21 year olds shouldn't even be thinking about bonds ... I'm 32 and every dollar I have is either invested in total us / Total int'l ... or a high yield savings account - "safely" growing while giving me the opportunity to pounce on the next buying opportunity with 2 clicks
Well, can't stop them from thinking about bonds, especially if they spent some time on the bond desk :D

In practice, do you think high yield savings accounts are very different from a bond fund?

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Re: What advice to give 21 year old?

Post by ray333 » Sat Jul 15, 2017 10:18 am

TomatoTomahto wrote:
RRAAYY3 wrote:21 year olds shouldn't even be thinking about bonds ... I'm 32 and every dollar I have is either invested in total us / Total int'l ... or a high yield savings account - "safely" growing while giving me the opportunity to pounce on the next buying opportunity with 2 clicks
Well, can't stop them from thinking about bonds, especially if they spent some time on the bond desk :D

In practice, do you think high yield savings accounts are very different from a bond fund?
High yield savings account balances never go down (aside from withdrawals, obv.) ... and if they start to, we have much bigger problems than asset allocation

aside from it seeming like a less than ideal bond environment ... I like the "safe" part of my assets to actually be safe.

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