Investing as a soon-to-be 21 year old

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perchperkins35
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Investing as a soon-to-be 21 year old

Post by perchperkins35 » Sat Jun 08, 2019 10:07 am

Greetings all!

Currently I am 20 years old, and I turn 21 this September.
I need advice and help on investing and setting myself up for the future.

Ive been working since I was 16, however I haven't saved a whole lot of money. I tried my hand at day trading, and lost 30% of my portfolio and have learned my lesson. Currently I have $2000 invested in the S&P 500 and plan on just holding it forever and reinvesting dividends. I am adding $40 a week to my account which I will invest into the S&P 500 which is around $2000 a year, as well as $10 a week into a separate account that I am buying Gazprom stock with (2.59% dividend)..awesome!)

I have some personal problems and habits that are preventing me from investing as much as Id like. I also use Acorns and have a 10X multiplier on all roundups.

A: I go out to eat 1-2 times a week
B: I spend too much money on my Audiophile hobby (which I am going to tone back a bit)
C I only make $225 a week, and have around $450 in legitimate expenses (car insurance, phone, gas, and saving money for car repair or emergencies)


Any advice on how to cut my expenses and save more?
Is the S&P 500 a good investment? Are there better places to invest my money?

Flyer24
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Re: Investing as a soon-to-be 21 year old

Post by Flyer24 » Sat Jun 08, 2019 10:26 am

I don’t really know that you need to cut expenses as much as you have got to get your income up. Your best investment is in yourself (education or learning a trade). Glad to have you on this forum. Welcome.

Topic Author
perchperkins35
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Re: Investing as a soon-to-be 21 year old

Post by perchperkins35 » Sat Jun 08, 2019 10:27 am

Flyer24 wrote:
Sat Jun 08, 2019 10:26 am
I don’t really know that you need to cut expenses as much as you have got to get your income up. Your best investment is in yourself (education or learning a trade). Glad to have you on this forum. Welcome.
Currently getting my degree in engineering and im looking for other jobs for side income. This job isn ice because I don't do anything 50% of the time. Im working right now as I type this lol. It nice because I can do all my homework while im working when im going to school.

Flyer24
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Re: Investing as a soon-to-be 21 year old

Post by Flyer24 » Sat Jun 08, 2019 10:37 am

perchperkins35 wrote:
Sat Jun 08, 2019 10:27 am
Flyer24 wrote:
Sat Jun 08, 2019 10:26 am
I don’t really know that you need to cut expenses as much as you have got to get your income up. Your best investment is in yourself (education or learning a trade). Glad to have you on this forum. Welcome.
Currently getting my degree in engineering and im looking for other jobs for side income. This job isn ice because I don't do anything 50% of the time. Im working right now as I type this lol. It nice because I can do all my homework while im working when im going to school.
That is awesome. It just helps us give you better advice when we have your complete picture. Is this investment in a Roth IRA?

abc132
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Re: Investing as a soon-to-be 21 year old

Post by abc132 » Sat Jun 08, 2019 10:44 am

Keep investing 20% of your earnings and you will do great.

Anything above that, do whatever you want with. Enjoy life, including your audiophile interest.

Keep costs low, and take what the market gives you.

It's really that simple.

decapod10
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Re: Investing as a soon-to-be 21 year old

Post by decapod10 » Sat Jun 08, 2019 10:51 am

perchperkins35 wrote:
Sat Jun 08, 2019 10:07 am

Any advice on how to cut my expenses and save more?
Is the S&P 500 a good investment? Are there better places to invest my money?
S&P 500 is perfectly fine. The S&P500 is basically 500 of the biggest US companies. When you're first starting out and you don't have a ton of money, it's probably not worth it to diversify more than that.

Another reasonable (probably better) alternative would be some sort of US Total Stock Market Index fund. It would include the S&P500 stocks and also medium and small companies as well. Most brokerages have a "TSM" fund, and you can find ETFs of them as well.

Or, if you are with Vanguard or Fidelity, you can use a "Target Date" fund. It's basically 1 fund that hold several different funds. They keep it in balance and also change the % of stocks and bonds as you get older (typically more bonds and less stocks as you get older).

Just pick one of the above, put all your money in there for now. I would probably go with a US TSM fund for now personally over the S&P500 fund.

When you start getting a bigger nest egg, you can start thinking about diversifying more (like a 3-fund portfolio, or even something more complicated if you want).

retiredjg
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Re: Investing as a soon-to-be 21 year old

Post by retiredjg » Sat Jun 08, 2019 11:06 am

perchperkins35, welcome to the forum!

If you are saving any money at all at your age, it's a great plus and you are way ahead of the game.

I would not worry too much about cutting expenses. And there is no reason not to eat out a few times a week and listen to good music if you can pay your bills. There is more to life than saving and having a balance between saving and spending is very important.

You've already learned about day trading - it is more gambling than saving. However, you might want to consider your devotion to Gazprom stock (do you really want to put 1/5th of your savings into 1 individual stock????). And what on earth is "Acorns/10X multiplier/roundups"? I know it is not something we talk about here, so it might be something to consider not doing.

The 500 Index fund is perfectly fine although many consider a total stock index fund better. They perform about the same.

The one thing that really sticks out that you should be doing is putting money into Roth IRA instead of into an ordinary taxable account. Are you familiar with Roth IRA?

petulant
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Re: Investing as a soon-to-be 21 year old

Post by petulant » Sat Jun 08, 2019 11:19 am

At your age and savings level, the fact that you save money is more important than what you put it in. Your focus should be to keep up the habit of saving a portion of your paycheck while investing in a career that you can see yourself doing over the long haul.

As others have said, though, it might make more sense to put any investments you do make in a Roth IRA.

MotoTrojan
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Re: Investing as a soon-to-be 21 year old

Post by MotoTrojan » Sat Jun 08, 2019 11:21 am

Why Gazprom? The chart looks terrible.

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arcticpineapplecorp.
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Re: Investing as a soon-to-be 21 year old

Post by arcticpineapplecorp. » Sat Jun 08, 2019 11:46 am

perchperkins35 wrote:
Sat Jun 08, 2019 10:07 am
Ive been working since I was 16, however I haven't saved a whole lot of money. I tried my hand at day trading, and lost 30% of my portfolio and have learned my lesson. Currently I have $2000 invested in the S&P 500 and plan on just holding it forever and reinvesting dividends. I am adding $40 a week to my account which I will invest into the S&P 500 which is around $2000 a year, as well as $10 a week into a separate account that I am buying Gazprom stock with (2.59% dividend)..awesome!)

I have some personal problems and habits that are preventing me from investing as much as Id like. I also use Acorns and have a 10X multiplier on all roundups.
welcome to the forum.

few things...there's nothing wrong with acorns (other than the fees) but you have to understand that incentives matter. In the case of acorns, you're being "rewarded" by "saving/investing" every time you spend. So the more you spend the more you save. I think this if anything encourages spending which is the wrong way to look at savings and investing. The best way to have money to save and invest is not to spend it at all.

Warren Buffett has said "Don't spend first and save what's left. Rather, save first and spend what's left." That's the right way of thinking about it. It also is more consistent with what you say you want (to spend less). I don't see how touting acorns help you meet your goal of "spending less." If anything, it encourages the opposite. And the fees are higher than they need to be. With acorns core ($1/month) You don't get down to 0.25% annually until you have $5000 invested. If you're rounding up change to the nearest dollar it's gonna take awhile to get to that level. source: https://www.google.com/search?client=fi ... for+acorns

You are excited about the dividend from the single stock but you have to understand dividends are not a free lunch or an extra bonus. It's just coming out of the profits of the company that otherwise would be reinvested and reflected in the higher stock price. In other words, there's no difference overall in getting a dividend, other than you're having to pay taxes when a dividend is paid, whereas a stock that doesn't pay a dividend allows you to put off taxes into the future and sell as capital gains instead. Depending on tax rates in the future this could be more favorable.

Also, a company can cut its dividend and/or go out of business. There goes your beloved dividend (not to mention your principle).

You should read more about dividends on bogleheads to see why they shouldn't be as favored as you think they are:

viewtopic.php?f=10&t=242939&=high+yield ... d#p3806231
viewtopic.php?f=1&t=225546&=high+yield+ ... d#p3490496
viewtopic.php?f=10&t=242939&=high+yield ... d#p3806364

congrats about learning your lesson regarding day trading. Now you've got to learn your lesson about why owning individual stocks doesn't make much sense:

https://www.google.com/search?client=fi ... +bills+pdf

own the entire global market. Then you'll own your beloved individual companies and get the return of the market. S&P500 is not the global market. It's large cap U.S. stocks. The global market is the total U.S. stock market and the total international stock market indexes. Own them both. Doing so will not only get you large u.s. stocks, but also mid, small, value growth, u.s., international, emerging markets and all sectors. You can't be more diversified than that.

William Sharpe has said the three most important things in investing are diversification, diversification, diversification.

Owning a single stock is not diversification. it's taking sector, size, style, country, manager, stock risk. You eliminate all those risks when you own the entire market and are only left with market risk, which is the risk you have to take to get the return of the market (and can reduce this risk by owning bonds). But you don't get compensated for taking all the other risks of owning individual stocks.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

pkcrafter
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Re: Investing as a soon-to-be 21 year old

Post by pkcrafter » Sat Jun 08, 2019 12:40 pm

Welcome,
perchperkins35 wrote:
Sat Jun 08, 2019 10:07 am
Greetings all!

Currently I am 20 years old, and I turn 21 this September.
I need advice and help on investing and setting myself up for the future.

Ive been working since I was 16, however I haven't saved a whole lot of money. I tried my hand at day trading, and lost 30% of my portfolio and have learned my lesson. Currently I have $2000 invested in the S&P 500 and plan on just holding it forever and reinvesting dividends. I am adding $40 a week to my account which I will invest into the S&P 500 which is around $2000 a year, as well as $10 a week into a separate account that I am buying Gazprom stock with (2.59% dividend)..awesome!)
You are doing as well as you can considering the income. If you are getting a W-2 you can open a Roth and put your $2000 in it. You should also stop investing in a single stock and focus on this:

Getting started

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

3-fund portfolio

viewtopic.php?f=10&t=88005

Asset Allocation

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

https://finpage.blog/author/pkcrafter/

tax-efficient investing- Not a problem now, but could be in the future--

https://www.bogleheads.org/wiki/Tax-eff ... _placement
I have some personal problems and habits that are preventing me from investing as much as Id like. I also use Acorns and have a 10X multiplier on all roundups.
I would not recommend Acorns.
A: I go out to eat 1-2 times a week
B: I spend too much money on my Audiophile hobby (which I am going to tone back a bit)
C I only make $225 a week, and have around $450 in legitimate expenses (car insurance, phone, gas, and saving money for car repair or emergencies)

Any advice on how to cut my expenses and save more?
Is the S&P 500 a good investment? Are there better places to invest my money?
Yes and yes.

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.

retiredjg
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Re: Investing as a soon-to-be 21 year old

Post by retiredjg » Sat Jun 08, 2019 1:00 pm

About your individual stock...it is recommended that individual stock make up no more the 5% (10% some say) of your portfolio. If we cannot convince you to dump it all, at least cut it down to only 5% of your portfolio.

If you are falling for the dividend gimmick...don't. They are giving you your own money rather than reinvesting it in the company. For each dollar they give you, you pay taxes. In other words, you are actually losing money rather than getting what seems like free money.

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dratkinson
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Re: Investing as a soon-to-be 21 year old

Post by dratkinson » Sat Jun 08, 2019 4:33 pm

First learn, then do.


If... you have money that you want to save for your retirement, put it into a TDR (target date retirement) fund, inside a Roth IRA, that you will open for yourself at Vanguard, Fidelity,....

You are not allowed to touch this money until your are 65 and retired. Period. If you can't do this, then don't invest for your retirement... now.


If... you plan to use your money for expenses (living, education, moving to your first job after college,...), then put it into savings/CDs and let is accumulate as your first EF (emergency fund).

Don't be moving it into/out of the market. Don't invest in individual stocks. Don't invest in mutual funds or ETFs... now. Why? The market could be down when you need the money, so you would sell at a loss.

In the short-run, you are more concerned with return OF your principal, than return ON your principal.

Disclosure. I worked FT time in college (‘70s) and went to school PT. When I graduated, I was debt-free and had a few thousand in savings. It made establishing myself at my first job much easier. I began saving for my retirement after I was employed.


Spend your time now in college learning the skills you will need to succeed in your career.


After you graduate and are employed, then come back for your financial review and advice. Then you can begin investing for your retirement.



Recommended books. What I wish someone had told me when I was in my 20s.

The Only Investment Guide You’ll Every Need, Andrew Tobias. Or…
How to Make the Most of Your Money, Jane Bryant Quinn. Both cover personal finance topics.

The Bogleheads’ Guide to Investing. A structured overview of wise retirement investing.

Date… or Soul Mate, Warren. Priceless if it helps avoid bad marriage/divorce.

Get the books from your local public library.



Welcome.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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dratkinson
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Re: Investing as a soon-to-be 21 year old

Post by dratkinson » Mon Jun 10, 2019 8:45 am

Forgot to add.

To know the road ahead, ask those coming back. -–Chinese proverb.
“If I Knew Then What I Know Now:” viewtopic.php?f=2&t=161092
Last edited by dratkinson on Mon Jun 10, 2019 9:22 am, edited 1 time in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

Topic Author
perchperkins35
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Re: Investing as a soon-to-be 21 year old

Post by perchperkins35 » Mon Jun 10, 2019 9:06 am

Flyer24 wrote:
Sat Jun 08, 2019 10:37 am
perchperkins35 wrote:
Sat Jun 08, 2019 10:27 am
Flyer24 wrote:
Sat Jun 08, 2019 10:26 am
I don’t really know that you need to cut expenses as much as you have got to get your income up. Your best investment is in yourself (education or learning a trade). Glad to have you on this forum. Welcome.
Currently getting my degree in engineering and im looking for other jobs for side income. This job isn ice because I don't do anything 50% of the time. Im working right now as I type this lol. It nice because I can do all my homework while im working when im going to school.
That is awesome. It just helps us give you better advice when we have your complete picture. Is this investment in a Roth IRA?
This is not. the is just an investment in a regular account however I just opened a Roth IRA

Topic Author
perchperkins35
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Re: Investing as a soon-to-be 21 year old

Post by perchperkins35 » Mon Jun 10, 2019 9:08 am

retiredjg wrote:
Sat Jun 08, 2019 1:00 pm
About your individual stock...it is recommended that individual stock make up no more the 5% (10% some say) of your portfolio. If we cannot convince you to dump it all, at least cut it down to only 5% of your portfolio.

If you are falling for the dividend gimmick...don't. They are giving you your own money rather than reinvesting it in the company. For each dollar they give you, you pay taxes. In other words, you are actually losing money rather than getting what seems like free money.
But if I own this stock in a Roth IRA wont I pay no taxes on it if I don't withdraw the money until age 59?

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perchperkins35
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Re: Investing as a soon-to-be 21 year old

Post by perchperkins35 » Mon Jun 10, 2019 9:14 am

MotoTrojan wrote:
Sat Jun 08, 2019 11:21 am
Why Gazprom? The chart looks terrible.
Great dividends, and they are the biggest company in Russia. They are an oil company with 112 billion in revenue and 50.3% of them are owned by the Russian government. yes political tension are tight with us and Russia, however Oil is oil and everyone needs it. they are also relatively stable over the last few years and are expanding.

retiredjg
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Re: Investing as a soon-to-be 21 year old

Post by retiredjg » Mon Jun 10, 2019 9:14 am

perchperkins35 wrote:
Mon Jun 10, 2019 9:08 am
retiredjg wrote:
Sat Jun 08, 2019 1:00 pm
About your individual stock...it is recommended that individual stock make up no more the 5% (10% some say) of your portfolio. If we cannot convince you to dump it all, at least cut it down to only 5% of your portfolio.

If you are falling for the dividend gimmick...don't. They are giving you your own money rather than reinvesting it in the company. For each dollar they give you, you pay taxes. In other words, you are actually losing money rather than getting what seems like free money.
But if I own this stock in a Roth IRA wont I pay no taxes on it if I don't withdraw the money until age 59?
That is correct. No taxes on dividends that stay in the Roth IRA.

However, do not be tricked by dividends. Many people see dividends as "free money" and that is simply not the case. If you have a stock share worth $10, the day it pays it's $1 dividend, the share price drops to $9. So you had $10 before the dividend and still have $10 after the dividend.

I don't know that your interest in this individual stock is about dividends, but that is frequently the case. Well, I guess I do now.

Do not be fooled. And keep individual stock to a minimum in your portfolio.

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Pete12
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Re: Investing as a soon-to-be 21 year old

Post by Pete12 » Mon Jun 10, 2019 9:16 am

Take a look at this, it’s a short read and you are ahead of the curve already at your age (the author assumes you start investing at age 25)
https://www.etf.com/docs/IfYouCan.pdf

MotoTrojan
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Re: Investing as a soon-to-be 21 year old

Post by MotoTrojan » Mon Jun 10, 2019 9:21 am

perchperkins35 wrote:
Mon Jun 10, 2019 9:14 am
MotoTrojan wrote:
Sat Jun 08, 2019 11:21 am
Why Gazprom? The chart looks terrible.
Great dividends, and they are the biggest company in Russia. They are an oil company with 112 billion in revenue and 50.3% of them are owned by the Russian government. yes political tension are tight with us and Russia, however Oil is oil and everyone needs it. they are also relatively stable over the last few years and are expanding.
A 2.59% dividend is a great dividend? It is down 15% over the last 5 years while the Total US is up 46% in that timeframe. Those returns do not include dividends but VTI is throwing out 1.9% so I don't think we are looking at much difference there. You might as well be tossing your money into the flare-stack of the natural gas they are producing.

Yikes: Move the chart back a few years and it is even worse. Still down 70% from the pre-GFC era.

Topic Author
perchperkins35
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Re: Investing as a soon-to-be 21 year old

Post by perchperkins35 » Mon Jun 10, 2019 12:01 pm

retiredjg wrote:
Mon Jun 10, 2019 9:14 am
perchperkins35 wrote:
Mon Jun 10, 2019 9:08 am
retiredjg wrote:
Sat Jun 08, 2019 1:00 pm
About your individual stock...it is recommended that individual stock make up no more the 5% (10% some say) of your portfolio. If we cannot convince you to dump it all, at least cut it down to only 5% of your portfolio.

If you are falling for the dividend gimmick...don't. They are giving you your own money rather than reinvesting it in the company. For each dollar they give you, you pay taxes. In other words, you are actually losing money rather than getting what seems like free money.
But if I own this stock in a Roth IRA wont I pay no taxes on it if I don't withdraw the money until age 59?
That is correct. No taxes on dividends that stay in the Roth IRA.

However, do not be tricked by dividends. Many people see dividends as "free money" and that is simply not the case. If you have a stock share worth $10, the day it pays it's $1 dividend, the share price drops to $9. So you had $10 before the dividend and still have $10 after the dividend.

I don't know that your interest in this individual stock is about dividends, but that is frequently the case. Well, I guess I do now.

Do not be fooled. And keep individual stock to a minimum in your portfolio.

Topic Author
perchperkins35
Posts: 8
Joined: Sat Jun 08, 2019 9:46 am

Re: Investing as a soon-to-be 21 year old

Post by perchperkins35 » Mon Jun 10, 2019 12:07 pm

MotoTrojan wrote:
Mon Jun 10, 2019 9:21 am
perchperkins35 wrote:
Mon Jun 10, 2019 9:14 am
MotoTrojan wrote:
Sat Jun 08, 2019 11:21 am
Why Gazprom? The chart looks terrible.
Great dividends, and they are the biggest company in Russia. They are an oil company with 112 billion in revenue and 50.3% of them are owned by the Russian government. yes political tension are tight with us and Russia, however Oil is oil and everyone needs it. they are also relatively stable over the last few years and are expanding.
A 2.59% dividend is a great dividend? It is down 15% over the last 5 years while the Total US is up 46% in that timeframe. Those returns do not include dividends but VTI is throwing out 1.9% so I don't think we are looking at much difference there. You might as well be tossing your money into the flare-stack of the natural gas they are producing.

Yikes: Move the chart back a few years and it is even worse. Still down 70% from the pre-GFC era.
can you recommend some other stocks that are stable and have good dividends?
What about Stone castle financial (BANX) I want 5% of my portfolio to include a strong performing stock with good dividends.

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perchperkins35
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Re: Investing as a soon-to-be 21 year old

Post by perchperkins35 » Mon Jun 10, 2019 12:45 pm

arcticpineapplecorp. wrote:
Sat Jun 08, 2019 11:46 am
perchperkins35 wrote:
Sat Jun 08, 2019 10:07 am
Ive been working since I was 16, however I haven't saved a whole lot of money. I tried my hand at day trading, and lost 30% of my portfolio and have learned my lesson. Currently I have $2000 invested in the S&P 500 and plan on just holding it forever and reinvesting dividends. I am adding $40 a week to my account which I will invest into the S&P 500 which is around $2000 a year, as well as $10 a week into a separate account that I am buying Gazprom stock with (2.59% dividend)..awesome!)

I have some personal problems and habits that are preventing me from investing as much as Id like. I also use Acorns and have a 10X multiplier on all roundups.
welcome to the forum.

few things...there's nothing wrong with acorns (other than the fees) but you have to understand that incentives matter. In the case of acorns, you're being "rewarded" by "saving/investing" every time you spend. So the more you spend the more you save. I think this if anything encourages spending which is the wrong way to look at savings and investing. The best way to have money to save and invest is not to spend it at all.

Warren Buffett has said "Don't spend first and save what's left. Rather, save first and spend what's left." That's the right way of thinking about it. It also is more consistent with what you say you want (to spend less). I don't see how touting acorns help you meet your goal of "spending less." If anything, it encourages the opposite. And the fees are higher than they need to be. With acorns core ($1/month) You don't get down to 0.25% annually until you have $5000 invested. If you're rounding up change to the nearest dollar it's gonna take awhile to get to that level. source: https://www.google.com/search?client=fi ... for+acorns

You are excited about the dividend from the single stock but you have to understand dividends are not a free lunch or an extra bonus. It's just coming out of the profits of the company that otherwise would be reinvested and reflected in the higher stock price. In other words, there's no difference overall in getting a dividend, other than you're having to pay taxes when a dividend is paid, whereas a stock that doesn't pay a dividend allows you to put off taxes into the future and sell as capital gains instead. Depending on tax rates in the future this could be more favorable.

Also, a company can cut its dividend and/or go out of business. There goes your beloved dividend (not to mention your principle).

You should read more about dividends on bogleheads to see why they shouldn't be as favored as you think they are:

viewtopic.php?f=10&t=242939&=high+yield ... d#p3806231
viewtopic.php?f=1&t=225546&=high+yield+ ... d#p3490496
viewtopic.php?f=10&t=242939&=high+yield ... d#p3806364

congrats about learning your lesson regarding day trading. Now you've got to learn your lesson about why owning individual stocks doesn't make much sense:

https://www.google.com/search?client=fi ... +bills+pdf

own the entire global market. Then you'll own your beloved individual companies and get the return of the market. S&P500 is not the global market. It's large cap U.S. stocks. The global market is the total U.S. stock market and the total international stock market indexes. Own them both. Doing so will not only get you large u.s. stocks, but also mid, small, value growth, u.s., international, emerging markets and all sectors. You can't be more diversified than that.

William Sharpe has said the three most important things in investing are diversification, diversification, diversification.

Owning a single stock is not diversification. it's taking sector, size, style, country, manager, stock risk. You eliminate all those risks when you own the entire market and are only left with market risk, which is the risk you have to take to get the return of the market (and can reduce this risk by owning bonds). But you don't get compensated for taking all the other risks of owning individual stocks.


I just use acorns as a way to save more money for my emergency/vacation fund. I saved $1200 in 4 months with acorns and made $100 too from investments. My main account however, has $40 per week going into it.

mchampse
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Re: Investing as a soon-to-be 21 year old

Post by mchampse » Mon Jun 10, 2019 12:47 pm

If you are dead set on dividends, consider the Vanguard Dividend Growth Fund. That said, why do you want a dividend stock?

Growth companies don’t pay dividends and reinvest the money into their businesses and their stock prices tend to increase more than dividend payers. Assuming you don’t need the dividends right now, you’d be better off putting your money into a growth fund like Vanguard Growth Index Fund.

MotoTrojan
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Re: Investing as a soon-to-be 21 year old

Post by MotoTrojan » Mon Jun 10, 2019 12:57 pm

perchperkins35 wrote:
Mon Jun 10, 2019 12:07 pm
MotoTrojan wrote:
Mon Jun 10, 2019 9:21 am
perchperkins35 wrote:
Mon Jun 10, 2019 9:14 am
MotoTrojan wrote:
Sat Jun 08, 2019 11:21 am
Why Gazprom? The chart looks terrible.
Great dividends, and they are the biggest company in Russia. They are an oil company with 112 billion in revenue and 50.3% of them are owned by the Russian government. yes political tension are tight with us and Russia, however Oil is oil and everyone needs it. they are also relatively stable over the last few years and are expanding.
A 2.59% dividend is a great dividend? It is down 15% over the last 5 years while the Total US is up 46% in that timeframe. Those returns do not include dividends but VTI is throwing out 1.9% so I don't think we are looking at much difference there. You might as well be tossing your money into the flare-stack of the natural gas they are producing.

Yikes: Move the chart back a few years and it is even worse. Still down 70% from the pre-GFC era.
can you recommend some other stocks that are stable and have good dividends?
What about Stone castle financial (BANX) I want 5% of my portfolio to include a strong performing stock with good dividends.
Do you understand how dividends and total return are related? I agree with the above; if you are fixated on dividends I would use a dividend fund, and I would use it in an IRA (never taxable). At your age though it would be best to learn why dividends aren't magic money and set up a more sound plan from day 1.

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dratkinson
Posts: 4567
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

The dividend investing problem.

Post by dratkinson » Tue Jun 11, 2019 1:30 pm

There is a problem with dividend investing that is not obvious to new investors and those in low tax brackets. What?
--Many dividend investments do not receive special tax treatment so are taxed at your highest tax rate.
--All dividends* add to your AGI (adjusted gross income) so push you toward a higher tax bracket.

* Exception. Tax-exempt dividends from national municipal bond funds (fed) and single-state municipal bond funds (fed + state) don’t add to fed AGI. Dividends from treasury bond funds are state tax exempt but do add to fed AGI.


On your 1099DIV, box 1a lists your total dividends received, box 1b lists the portion of total dividends that are QDI (qualified dividend income) and receive special tax treatment.


Special tax treatment (old tax code, don't know new tax code). QDI and LTCG (long-term capital gains, from the sale of investments owned >1yr) are taxed at 0% if you are in the <=15% tax bracket. Are taxed at 15% if you are in the >15% tax bracket. Higher income earners may pay additional 3.8% NIIT (non-investment income tax) Medicare tax.



The majority of the dividends paid by the recommended TSM (total stock market index fund) and TISM (total international stock market index fund) are QDI, so are taxed at 0% or 15%.



Thought experiment. Assume you are 45yo and in your highest earning years. Your career is running smoothly and you are making good money. You've been investing in dividend paying stocks since your beginning, but you don't need the dividends to live on.

But every year your dividends push you into the next higher tax bracket, which you could have avoided if you didn't have the dividend investments.

But you can't sell the dividend investments because you bought them when they were much lower, and you don’t want to pay the capital gains tax to sell them.

So you are damned if you do (sell them), and damned if you don't (sell them).

The best way to avoid the dividend problem it to stop it before it starts.



Value and dividend investments. The majority of the return from these investments is distributed as dividends. You can't control when you receive the dividends.

Growth investments. They pay little in dividends and your investment growth is reflected in their growing share price. You receive your return when you sell your investments, which means you can control WHEN you receive your return. You can wait until you are retired and sell when you are in a lower tax bracket.



By three ways may we acquire wisdom:
--By reflection, which is noblest,
--By imitation, which is easiest,
--By experience, which is bitterest. --Confucius

Or this generalization of his advice:
--Smart people learn from OTHER people's mistakes,
--Average people learn from their own mistakes,
--Stupid people never learn.


The advice you are receiving to avoid dividend investments is intended to help you avoid a problem you will not identify on your own for many years. At which time it will be expensive to correct.

If you must invest in dividend investments, then put them in a tax-advantaged account. This will protect you from needing to pay tax on them every year, and will avoid adding to your AGI. Your 45yo self will thank you.


Search forum for other thoughts on the problem of dividend investing.
Search: http://www.google.com/search?q=dividend ... rg%2Fforum

Also see Wiki topic: https://www.bogleheads.org/wiki/Princip ... _Placement



Disclosure. I received some MET stock from the MetLife demutualization and the offer to buy more shares. But noticed when doing my taxes that the quarterly dividends were not QDI (box 1b = 0). I eventually sold my MET shares and bought more of my single-state muni bond fund.

I turned my taxed non-QDI investment that was increasing my AGI and pushed me toward a higher tax bracket, into one that was exempt from both fed+state taxes and didn't add to my AGI so helped to keep me in a lower tax bracket. Sweet.
Last edited by dratkinson on Tue Jun 11, 2019 1:39 pm, edited 1 time in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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FelixTheCat
Posts: 1583
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Re: Investing as a soon-to-be 21 year old

Post by FelixTheCat » Tue Jun 11, 2019 1:36 pm

perchperkins35 wrote:
Sat Jun 08, 2019 10:07 am
Any advice on how to cut my expenses and save more?
Define expenses in needs and wants. You need food, clothing and a place to live. You want to eat out, television, etc. Try to cut down on wants.

Try budgeting with YNAB https://www.youneedabudget.com/

perchperkins35 wrote:
Sat Jun 08, 2019 10:07 am
Is the S&P 500 a good investment? Are there better places to invest my money?
According to Warren Buffett, the S&P 500 is the place to park your money. You're fine as long as you can handle the volatility.
Felix is a wonderful, wonderful cat.

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