22 yo with 70k new to investing with almost entire salary going towards savings

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gurtagel
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Joined: Tue Jan 23, 2018 9:23 pm

22 yo with 70k new to investing with almost entire salary going towards savings

Post by gurtagel » Tue Jan 23, 2018 9:46 pm

Hey everyone new to the site and was just wondering if I could get some help with deciding how to invest the money I have saved up and future retirement savings.

So, I have about 70k right now, of which 21k is in a roth ira I made 3 maximum contributions of 5500 to (right now $5000 of the roth is in SNAP which I am planning on selling soon made a bit of a profit, and about 6000 is in FRAN which I am also slightly positive on). The rest of my roth is in cash, and the other 49k I have is also in cash.

I have 0 debt, just finished a degree in computer science and already have a paid for car that I drive. My salary is 125k/year, and I am living with my parents for the foreseeable future as they love having me there and I would rather live with them in their home than an apartment I have to pay 3k/mo for (bay area living costs are high lol). Obviously I will not be living with them forever but just for the next several years until I have some or most of the money needed to put a downpayment on a home.

I also have a 401k and roth 401k available at work with an 8% match. Planning on putting 18,500 into the roth 401k a year (the 8% match is on my base salary of 108k so will get about an extra 8500 a year from that as well). I am permitted to invest in whatever I want with the 401k's (standard charles schwab account) or a variety of small,midcap,large,intnl, bond vanguard and target retirement funds.

My expenses as you can imagine are very low because of this, at around 800-1000 dollars/month, and I am just saving the rest of it.

But the biggest problem here is that I just do not know what to do with the money. I know the basics of investing and have read about the 3 step approach here on boggleheads but just wondering if anyone had any other suggestions on top of that of what to do with my money.

I know that we are nearing the end of a historically long bull market, and am just really nervous about seeing my 70k possibly drop in half because of a correction. I also want to be financially independent from my day job as soon as I possibly can, and have been looking into real estate (which is also really overpriced at the moment).

Any guidance would be really appreciated. I know that I am very blessed and am extremely thankful for my parents for supporting me through school/buying me a car and allowing me to basically receive the benefits of a high salary living in a hcol area while not having to pay the costs associated with living in that area.

Another point to note is that when I do eventually move out of the parents home, I am not sure whether I plan on staying in the bay area or taking the large sum I will hopefully have accumulated and moving to a lower cost of living area with cheaper home prices and lower salaries.


Thank You!!!


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rocket354
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by rocket354 » Tue Jan 23, 2018 10:13 pm

gurtagel wrote:
Tue Jan 23, 2018 9:46 pm
I know that we are nearing the end of a historically long bull market
Do you? How?
and have been looking into real estate (which is also really overpriced at the moment).
Is it? What should it be priced?

I ask these questions as someone who survived (barely) the great recession of ten years ago where I did have my stocks cut in half and my home value cut by 60% (and still not recovered).

50% drops do not happen often. 20% drops are more frequent, but so far there's been a 100% recovery rate. People have been saying the things you have since 2011. Those who've waited have regretted it. If you start investing now I can just about guarantee that

1) You will see a 20%+ drop at some point, probably several points
2) In 40 years it won't matter one bit, and you'll be very happy

If you don't invest, I can just about guarantee that:

1) You'll never feel quite comfortable buying in (if the market has been going down, why buy into a market that's "falling"; if it's been going up, why buy something that's overpriced?)
2) You will regret your decision further down the road.

Slowtraveler
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by Slowtraveler » Wed Jan 24, 2018 12:12 am

I personally love Wellesley. I'd use that where you can if you're terrified of stock market drops. I am near your age and have half my portfolio in US/International Index and then half in Wellesley/Global.

For the record, I started indexing a few years back and was terrified I'd lose it all. Now I'm wondering why I held so much cash back then. But I'm at least happy for my gains. Indexing will work out very well for you. If the market drops and you buy, you lower your cost basis since you buy more shares at a cheaper price than during strong markets where you buy less shares for the same price. So bear markets and volatility are your friend with a long working career.

Also, why a Roth? Do you plan on staying in California forever? You're paying a lot in taxes to both state and country now but if you have just 1 year of relaxing, you could convert a large amount in a much lower bracket, especially if you ever become a non resident of California.

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Tyler Aspect
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by Tyler Aspect » Wed Jan 24, 2018 12:49 am

Something that may be useful to you is to know that sometimes you do not have to go for the maximum tax savings. There is value in having diversity of different account types: traditional 401k, Roth 401k, and taxable.

One way to address your concern about stock market loss is to hold some bond type investment in your taxable account. IBonds is usually targeted for long term investments, but they can be withdrawn in an emergency with only minor penalties. Two year US Treasury Note can be purchased in a taxable account. They are very safe investments for a bit of confidence building in difficult times.

One other confidence building mechanism is to hold a beefy emergency cash cushion. We generally call for a cushion of 6 month expense. However, you could double it to one year's expense. That could make you more comfortable with holding a 80% stock / 20% bond portfolio.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

broslami
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by broslami » Wed Jan 24, 2018 1:42 am

Congrats you're off to a great start

When I was 22 I just sat around eating Doritos

Slowtraveler
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by Slowtraveler » Wed Jan 24, 2018 1:53 am

If you fund a traditional 401k, you can (would benefit greatly from) use the savings for a backdoor Roth IRA and build a diversified tax space as well. Having pre tax, taxable, and Roth from the start.

Gropes & Ray
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by Gropes & Ray » Wed Jan 24, 2018 10:15 am

I usually chime in to these threads with some short term investing advice. Over the next 10 years, demographics suggest you will likely get married, buy a house and even have a child or two. Cash can be a very fine way to hold any money you may spend in the coming decade.

gurtagel
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Joined: Tue Jan 23, 2018 9:23 pm

Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by gurtagel » Wed Jan 24, 2018 12:07 pm

rocket354 wrote:
Tue Jan 23, 2018 10:13 pm
gurtagel wrote:
Tue Jan 23, 2018 9:46 pm
I know that we are nearing the end of a historically long bull market
Do you? How?
and have been looking into real estate (which is also really overpriced at the moment).
Is it? What should it be priced?

I ask these questions as someone who survived (barely) the great recession of ten years ago where I did have my stocks cut in half and my home value cut by 60% (and still not recovered).

50% drops do not happen often. 20% drops are more frequent, but so far there's been a 100% recovery rate. People have been saying the things you have since 2011. Those who've waited have regretted it. If you start investing now I can just about guarantee that

1) You will see a 20%+ drop at some point, probably several points
2) In 40 years it won't matter one bit, and you'll be very happy

If you don't invest, I can just about guarantee that:

1) You'll never feel quite comfortable buying in (if the market has been going down, why buy into a market that's "falling"; if it's been going up, why buy something that's overpriced?)
2) You will regret your decision further down the road.


Thank you. The only reason I say that real estate is priced high right now is because properties are not cash-flowing positively at the current prices in my state (which is where I feel comfortable investing). The rest of what you said makes sense to me.

gurtagel
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Joined: Tue Jan 23, 2018 9:23 pm

Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by gurtagel » Wed Jan 24, 2018 12:11 pm

Slowtraveler wrote:
Wed Jan 24, 2018 12:12 am
I personally love Wellesley. I'd use that where you can if you're terrified of stock market drops. I am near your age and have half my portfolio in US/International Index and then half in Wellesley/Global.

For the record, I started indexing a few years back and was terrified I'd lose it all. Now I'm wondering why I held so much cash back then. But I'm at least happy for my gains. Indexing will work out very well for you. If the market drops and you buy, you lower your cost basis since you buy more shares at a cheaper price than during strong markets where you buy less shares for the same price. So bear markets and volatility are your friend with a long working career.

Also, why a Roth? Do you plan on staying in California forever? You're paying a lot in taxes to both state and country now but if you have just 1 year of relaxing, you could convert a large amount in a much lower bracket, especially if you ever become a non resident of California.

The reason I am going all after-tax is because I am confident that this is the lowest tax bracket that I will ever be in. I will be living in CA forever, but am thinking of moving to a different part of CA at a later time with a LCOL. I feel like especially with the recent tax cuts this is the lowest I will ever see taxes in a long time and because of how low my income is, it seems like a good way to build wealth that can never be touched by Uncle Sam again. Essentially I feel like the amount I am paying in taxes now will be small compared to what I will have to pay later on in life, hence the heavy post-tax.

gurtagel
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Joined: Tue Jan 23, 2018 9:23 pm

Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by gurtagel » Wed Jan 24, 2018 12:12 pm

Tyler Aspect wrote:
Wed Jan 24, 2018 12:49 am
Something that may be useful to you is to know that sometimes you do not have to go for the maximum tax savings. There is value in having diversity of different account types: traditional 401k, Roth 401k, and taxable.

One way to address your concern about stock market loss is to hold some bond type investment in your taxable account. IBonds is usually targeted for long term investments, but they can be withdrawn in an emergency with only minor penalties. Two year US Treasury Note can be purchased in a taxable account. They are very safe investments for a bit of confidence building in difficult times.

One other confidence building mechanism is to hold a beefy emergency cash cushion. We generally call for a cushion of 6 month expense. However, you could double it to one year's expense. That could make you more comfortable with holding a 80% stock / 20% bond portfolio.
Thanks!! Will take more of a look into that

gurtagel
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Joined: Tue Jan 23, 2018 9:23 pm

Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by gurtagel » Wed Jan 24, 2018 12:14 pm

Slowtraveler wrote:
Wed Jan 24, 2018 1:53 am
If you fund a traditional 401k, you can (would benefit greatly from) use the savings for a backdoor Roth IRA and build a diversified tax space as well. Having pre tax, taxable, and Roth from the start.
I am planning on going all Roth 401k. The employer match goes into a traditional 401k. And, I am planning on doing a backdoor Roth conversion yearly on top of that so I will have pre-tax and Roth covered. The remainder of my income minus my living expenses of 800$-1000$/mo will be going into taxable investments. Thanks!

gurtagel
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by gurtagel » Wed Jan 24, 2018 12:16 pm

Gropes & Ray wrote:
Wed Jan 24, 2018 10:15 am
I usually chime in to these threads with some short term investing advice. Over the next 10 years, demographics suggest you will likely get married, buy a house and even have a child or two. Cash can be a very fine way to hold any money you may spend in the coming decade.
Also very true. It just stings losing out on potential growth and inflation every year. :(

perl
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by perl » Wed Jan 24, 2018 1:12 pm

Do you have access to vanguard lifestrategy funds? That's a great place to start while you're learning. I would suggest the lifestrategy growth fund: you'll be diversified in stocks (80%) and bonds (20%) both in the US and internationally. Your money will be in a great place while you learn more.

Also, look at I bonds for money you may need in 5-10 years. Very safe and your cash will keep up with inflation.

gurtagel
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Joined: Tue Jan 23, 2018 9:23 pm

Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by gurtagel » Wed Jan 24, 2018 2:23 pm

perl wrote:
Wed Jan 24, 2018 1:12 pm
Do you have access to vanguard lifestrategy funds? That's a great place to start while you're learning. I would suggest the lifestrategy growth fund: you'll be diversified in stocks (80%) and bonds (20%) both in the US and internationally. Your money will be in a great place while you learn more.

Also, look at I bonds for money you may need in 5-10 years. Very safe and your cash will keep up with inflation.
Not quite sure but I have the option of doing the 401k through a seldction of their funds or theough a traditional charles schwab brokerage account, which I believe should have that fund

MrBeaver
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by MrBeaver » Wed Jan 24, 2018 3:36 pm

gurtagel wrote:
Tue Jan 23, 2018 9:46 pm
I have 0 debt, just finished a degree in computer science and already have a paid for car that I drive. My salary is 125k/year, and I am living with my parents for the foreseeable future as they love having me there and I would rather live with them in their home than an apartment I have to pay 3k/mo for (bay area living costs are high lol). Obviously I will not be living with them forever but just for the next several years until I have some or most of the money needed to put a downpayment on a home.
...
My expenses as you can imagine are very low because of this, at around 800-1000 dollars/month, and I am just saving the rest of it.
I'm kind of surprised that nobody has suggested this, but my advice is to be very clear and offer to pay something to your parents or at least cover some of the bills/groceries since you living there and are no longer financially dependent on them. Money is one thing, but family is priceless and you don't want money making family relationships tense in the future.

Regardless of whether they let you help out financially, I'd set clear goals with amounts and timelines about saving for a down payment or other near-term goals in the future. This will help to know how to distribute funds between taxable and tax-deferred. I find the process of budgeting for periodic expenses and earmarking 'savings' in your monthly budget (start saving now for your next car, etc.) extremely helpful.

wrongfunds
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by wrongfunds » Wed Jan 24, 2018 5:43 pm

because of how low my income is,
I am shocked, really shocked, that with "only* $125K per year income, you have had the audacity to even join this forum!






Do I have to put some funny tag for people to understand implied sarcasm?

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BolderBoy
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by BolderBoy » Wed Jan 24, 2018 5:49 pm

Gropes & Ray wrote:
Wed Jan 24, 2018 10:15 am
I usually chime in to these threads with some short term investing advice. Over the next 10 years, demographics suggest you will likely get married, buy a house and even have a child or two. Cash can be a very fine way to hold any money you may spend in the coming decade.
I'll take the opposite view. Any money you can stash away now - before the marriage, house and children appear - will help reduce by a lot, what you have to save later to otherwise make up for lost time in the market.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

MathWizard
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by MathWizard » Wed Jan 24, 2018 6:30 pm

My only advice is to be good to your parents.
You are truly blessed, (or as Warren Buffett puts it "You won the ovarian lottery".)

gurtagel
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by gurtagel » Wed Jan 24, 2018 8:31 pm

wrongfunds wrote:
Wed Jan 24, 2018 5:43 pm
because of how low my income is,
I am shocked, really shocked, that with "only* $125K per year income, you have had the audacity to even join this forum!






Do I have to put some funny tag for people to understand implied sarcasm?

My salary is typical for an entry level developer in the bay area so yes it is “low” in the sense that it is the lowest amount i will make during my career. Adjusted for cost of living you could probably cut my salary in half. I am just very fortunate that I will be able to earn that income without the costs associated with it.

gurtagel
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by gurtagel » Wed Jan 24, 2018 8:32 pm

BolderBoy wrote:
Wed Jan 24, 2018 5:49 pm
Gropes & Ray wrote:
Wed Jan 24, 2018 10:15 am
I usually chime in to these threads with some short term investing advice. Over the next 10 years, demographics suggest you will likely get married, buy a house and even have a child or two. Cash can be a very fine way to hold any money you may spend in the coming decade.
I'll take the opposite view. Any money you can stash away now - before the marriage, house and children appear - will help reduce by a lot, what you have to save later to otherwise make up for lost time in the market.
Yes I was thinking about this as well thanks!!

youngpleb
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by youngpleb » Wed Jan 24, 2018 10:27 pm

gurtagel wrote:
Wed Jan 24, 2018 8:31 pm

My salary is typical for an entry level developer in the bay area so yes it is “low” in the sense that it is the lowest amount i will make during my career. Adjusted for cost of living you could probably cut my salary in half. I am just very fortunate that I will be able to earn that income without the costs associated with it.
Yeah, I’m a software developer on the east coast and started at less than you currently make, but in a low cost of living area. Out of curiosity I looked up what my salary would translate to in the Bay Area, and it literally doubled! At least you are saving tens of thousands thanks to your parents though! It’s be good to give them something if they’re willing to accept it. Other than that, stash up as much as you can and live below your means for as long as you are able!
27. Always learning.

wrongfunds
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Re: 22 yo with 70k new to investing with almost entire salary going towards savings

Post by wrongfunds » Thu Jan 25, 2018 9:45 am

I am glad that both you and your parents actually like the idea of you staying with them. I would love my children to be able to do that but they have taken jobs in different geographical locations. I can guess that your parents are immigrants and most likely came from East Asia but that is really irrelevant to the fact that both the parents and the child mutually like the arrangement. And if I am right, you probably do not have to compensate your parents except may be pick up gallon of milk once in a while on the way back. It would be also nice if you don't hog the laundry all the time by dumping your dirty clothes in the washer and/or leaving them in the dryer :-) No, seriously, just be little bit more responsible than you would have been on your vacation days at home during your college years and everybody would be happy.

As far as giving you financial advice, just maximize all the tax deferred avenues and then pour rest in to taxable tax-efficient indexed funds and don't look at them or adjust them except once a year. I wish somebody had taught me that when I was first starting out. At least I have managed to convince my kids to start investing early.

Honestly, I am somewhat jealous of your parents :-)

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