How much should I save before I start investing? and more

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cocoon
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How much should I save before I start investing? and more

Post by cocoon » Tue May 15, 2018 2:30 am

Hi guys!
First of all, I want to clear out that I am still at university- studying and working at the same time. I have been financially independent for some time now. As my graduation approaches, I started thinking about ways I can be smart with my finances. I am new to the forum and the investment topic, and I have some questions- How much should I save before I start investing? Is spreading your investments more successful than focusing on 1/2 funds? What are the first steps a person should follow when they are beginning?
I am still in the process of saving, so I would like to know your thoughts on where I should start from

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BeBH65
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Re: How much should I save before I start investing? and more

Post by BeBH65 » Tue May 15, 2018 2:53 am

There are a few prerequisites before you can start to invest.
Have a look at our wiki pages on "getting started" and the "investing Startup kit"
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

cocoon
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Re: How much should I save before I start investing? and more

Post by cocoon » Tue May 15, 2018 3:09 am

Thank you, I will go through it now!

22twain
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Re: How much should I save before I start investing? and more

Post by 22twain » Tue May 15, 2018 8:00 am

cocoon wrote:
Tue May 15, 2018 2:30 am
What are the first steps a person should follow when they are beginning?
The first thing you should do is take advantage of whatever tax-deferred retirement savings plan your employer has (when you get a "real job", that is.): 401(k), 403(b), etc. Unless you start out making a lot more money that I did when I was starting out, you won't need to look for anyplace else to put money for a while, except for an emergency fund and savings for short/medium term goals such as a new car or house.

Depending on what kind of career you have, and where, you may never need to go beyond a 401(k) etc. in saving for retirement. I didn't start a taxable investment account until my mid-50s, after I inherited some money. Until then I just kept a $10K-$20K "cash cushion" in my checking account, and focused on more or less steadily increasing contributions to my 403(b) plan.
My investing princiPLEs do not include absolutely preserving princiPAL.

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wander
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Re: How much should I save before I start investing? and more

Post by wander » Tue May 15, 2018 9:44 am

You can start investing now with as low as $100. Just open an brokerage account with Schwab and start building your asset.

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Earl Lemongrab
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Re: How much should I save before I start investing? and more

Post by Earl Lemongrab » Tue May 15, 2018 12:40 pm

As you are working, a Roth IRA makes a lot of sense, especially if you don't have a plan through work. You can even hold it in cash as an extension of your emergency fund/savings until you rebuild that in your regular accounts.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

dharrythomas
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Re: How much should I save before I start investing? and more

Post by dharrythomas » Tue May 15, 2018 2:47 pm

If you've got earned income, you can invest in an IRA preferably Roth IRA. With $1,000 Vanguard will let you open accounts with the STAR Fund or a Target Retirement Fund which provide broad diversification in balanced fund of funds. I usually recommend TR.

Good luck.

Austintatious
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Re: How much should I save before I start investing? and more

Post by Austintatious » Tue May 15, 2018 5:39 pm

Cocoon, plug William Bernstein's little work entitled "If You Can" into your google search window and pull up what's probably the simplest, clearest and wisest investment advice out there that's designed specifically for folks just like you. There are many other works that you will read as you develop your knowledge base on investing; indeed, the authors of some of those books live right here on the forum. But Bernstein's piece is relatively brief, absolutely spot on and designed to get the beginning investor off to a very sound start. Read it several times, then put it under your pillow and refer to it regularly for the foreseeable future. Did I mention that it's free? Good luck!

Independent George
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Re: How much should I save before I start investing? and more

Post by Independent George » Tue May 15, 2018 10:58 pm

cocoon wrote:
Tue May 15, 2018 2:30 am
Hi guys!
First of all, I want to clear out that I am still at university- studying and working at the same time. I have been financially independent for some time now. As my graduation approaches, I started thinking about ways I can be smart with my finances. I am new to the forum and the investment topic, and I have some questions- How much should I save before I start investing? Is spreading your investments more successful than focusing on 1/2 funds? What are the first steps a person should follow when they are beginning?
I am still in the process of saving, so I would like to know your thoughts on where I should start from
A popular rule of thumb around here is to have six months of expenses saved in cash as an emergency fund. This is to cover unexpected expenses like car repairs, sudden medical bills, etc.

From there, investing will depend on a lot of different factors unique to you - such as what kind of retirement plan your job offers (and whether you're eligible to begin contributing to it), where you'll be living (and how much it costs), etc. But you should definitely start contributing at least to an IRA as soon as you have the capital.

Also, keep in mind that many funds have a minimum investment needed to start (I think most Vanguard funds require at least $3,000). For that reason, when starting from scratch like that, I think it's best to keep it simple and stick with a single fund - personally, I'd go with a Vanguard Target Date fund, but others might argue for starting with Total Market Index to start and gradually building up your Three-Fund Portfolio.

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Eagle33
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Re: How much should I save before I start investing? and more

Post by Eagle33 » Tue May 15, 2018 11:53 pm

Austintatious wrote:
Tue May 15, 2018 5:39 pm
Cocoon, plug William Bernstein's little work entitled "If You Can" into your google search window and pull up what's probably the simplest, clearest and wisest investment advice out there that's designed specifically for folks just like you. There are many other works that you will read as you develop your knowledge base on investing; indeed, the authors of some of those books live right here on the forum. But Bernstein's piece is relatively brief, absolutely spot on and designed to get the beginning investor off to a very sound start. Read it several times, then put it under your pillow and refer to it regularly for the foreseeable future. Did I mention that it's free? Good luck!
https://www.google.com/url?sa=t&rct=j&q ... -SB3S580I5
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

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mikestorm
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Re: How much should I save before I start investing? and more

Post by mikestorm » Wed May 16, 2018 10:13 am

When you're just staring out, before you can learn to invest, you should first learn how to save. So even though you can start investing with relatively short money, the answer to OPs question is really dependent upon whether he has established the discipline to defer consumption both by establishing and maintaining a savings rate, and in terms of reliably not dipping in to what has already been saved.

Investment portfolios grow due to additions overtly made by the investor and (ideally) due to investment returns. The earliest years of investing, the % is most heavily weighted towards those overt additions, and doesn't begin to swing the other way until the investment portfolio has material heft and momentum, so if you can't reliably 'do your part' with adding to your nest egg, you're not quite ready to invest.

It wasn't until I had around $10,000 saved before I considered moving it from my savings account to an investment vehicle that wasn't FDIC insured. That took me well over a year to amass, but I felt that I had demonstrated that my self control was prepared to take things to the next level.

YMMV but this is what worked for me. Now I save as much as I can till it hurts. It's second nature.

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ofcmetz
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Re: How much should I save before I start investing? and more

Post by ofcmetz » Wed May 16, 2018 11:41 am

Learning to live on less than you earn is a much much harder skill to learn than learning to invest. I'd have a nice little emergency fund ($10 grand) and have at minimum all credit cards paid off before I started investing. Now, if you have an employer plan (401K) then you might as well put in enough to get any match before you do anything else.
Never underestimate the power of the force of low cost index funds.

Grt2bOutdoors
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Re: How much should I save before I start investing? and more

Post by Grt2bOutdoors » Wed May 16, 2018 11:58 am

cocoon wrote:
Tue May 15, 2018 2:30 am
Hi guys!
First of all, I want to clear out that I am still at university- studying and working at the same time. I have been financially independent for some time now. As my graduation approaches, I started thinking about ways I can be smart with my finances. I am new to the forum and the investment topic, and I have some questions- How much should I save before I start investing? Is spreading your investments more successful than focusing on 1/2 funds? What are the first steps a person should follow when they are beginning?
I am still in the process of saving, so I would like to know your thoughts on where I should start from
A minimum of Six to nine months of living expenses (no more than 1 year) in a safe and secure savings account for rainy day/emergency fund.
After that, 15% of your gross income directed towards retirement savings - you don't need 5 funds, you can do just fine with two funds, one stock, one bond, no cash. At a young age, an 80/20 or 90/10 mix will be just fine, rebalance once per year back to original allocation.
If you have additional disposable income, you may want to consider investing in a total stock market index fund and the rest in your savings account. Use the cash to add more when market takes a dive and/or there is more than you need between e-fund and your short to intermediate needs, like a car, an engagement ring, paying for known needs. Leave the taxable investments in for a minimum of 5 years, preferably longer.
Focus on accumulating appreciating assets, focus much less on depreciating objects. More asset appreciation means greater options down the road. Depreciating objects means spending more money, less money in pot today, likely leads to much less money down the road.
Decide, do you want to be the tortoise or the hare? Everyone wants to be a hare, few hares ever complete the race with all of their assets and sanity intact.

Read some books on investing - The Little Book of Common Sense Investing, 2nd ed - John Bogle
All About Asset Allocation - Rick Ferri
I'm fond of the William Bernstein and Larry Swedroe books. Read Winning the Losers Game.

After you've read them, you will know more than 90% of the typical financial advisors out there who are mainly just salesman pushing the latest products.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

cocoon
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Re: How much should I save before I start investing? and more

Post by cocoon » Tue May 22, 2018 8:05 am

Thank you so much, guys! Very useful information! :happy

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