Success without 401k or Stocks?

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Entropy105
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Success without 401k or Stocks?

Post by Entropy105 » Tue Sep 24, 2019 9:23 am

I'm 22 net worth 120k (57k checking, 5k HSA, 16k Roth IRA (uninvested), 40k+ other misc), no debt good credit. I'm single living in the cheap midwest and never had help from anyone financially, no college. I'm self employed with a single member LLC. I've been thinking lately - I have no interest in the stock market at large, ETFs, Vanguard funds etc, at least at this point in my life.

I don't want to ever bother with having a 401k or a generic brokerage account. A mentor/ older friend of mine surprised me when he said he doesn't own stocks at all, only real estate and corporate bonds and alternative investments. He's probably worth about 10m in his early 30s. My plan going forward is just to max out my roth IRA (6k) and 2.5k HSA every year and make alternative investments like real estate and reinvest into my business/ other businesses instead of taking the vanguard approach everyone else seems to take. I feel like I should just go all in on a few things rather than spread it around into things I can't control like the stock market. Am I crazy?
Last edited by Entropy105 on Tue Sep 24, 2019 9:35 am, edited 1 time in total.

goblue100
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Re: Success without 401k or Stocks?

Post by goblue100 » Tue Sep 24, 2019 9:32 am

Many people have made a lot of money in Real Estate, or starting their own business. It is not the path I would choose, but if you think that is your path then have at it. I might suggest you invest a little of your money, say 5%, in either a Fidelity or Vanguard target date retirement fund. This will diversify your interests and may provide a backup in case plan A doesn't work as well as expected. I would also suggest that at 22 your interests will change quite a lot over the next 50 years, and you may find some interest in the equity markets at some point.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

alex_686
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Re: Success without 401k or Stocks?

Post by alex_686 » Tue Sep 24, 2019 9:49 am

First, I would suggest that your friend is not investing in real estate or alternative investments. Rather, he is running a business that invests in real estate and alternative investments. Its like asking why should one invest in stocks - after all a friend of yours is a medical doctor and makes a good money from his practice. You can make a fair amount of money doing this, but it requires a fair amount of time, skill, and luck.

Which takes me to my second point. These investments are high risk high return investments. A few make lots of money, most don't. It is hard to distinguish between skill and luck. There is a old Texan oil-man saying that you are not truly rich until you have declared bankruptcy 3 times.

Bogleheads and passive investing should be considered the neutral default investment. With very little effort you get a very efficient investment. Only if you have skill and can take the risk should you deviate from the neutral position.

BogleMelon
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Re: Success without 401k or Stocks?

Post by BogleMelon » Tue Sep 24, 2019 10:14 am

Why would you bother maxing your Roth IRA, if the money won't be invested? :?
To answer your question, yes, some people succeed without stocks by one of the following:
1- Get a windfall (inheritance, lottery,...etc)
2- Save most of their income (Risk of inflation is a very high risk in this case)
3- Become business owners, and invest 100% of their money in their own business (Kind of 100% stocks in this case, but their own private stock!).
4- Perform one or a couple of successful trades, may involve other financial products than stocks. See what others didn't see (a Very rare type of people, think of Michael Burry)
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Topic Author
Entropy105
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Re: Success without 401k or Stocks?

Post by Entropy105 » Tue Sep 24, 2019 10:19 am

BogleMelon wrote:
Tue Sep 24, 2019 10:14 am
Why would you bother maxing your Roth IRA, if the money won't be invested? :?
I plan on investing it in a year or two when I find something I believe in and not just invest at the top of the market and lose half ( yes I know timing the market is bad). The roth will be my traditional retirement fund and since I started early and will max it out year after year I should be on track (for an average joe retirment) if all I ever did was contribute to my roth right? I should have 1.6m in the roth IRA at 65 assuming 6% return and 6k contribution annually.
Last edited by Entropy105 on Tue Sep 24, 2019 10:25 am, edited 1 time in total.

gmc4h232
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Re: Success without 401k or Stocks?

Post by gmc4h232 » Tue Sep 24, 2019 10:25 am

Just curious if your parents got burned by selling low during the Great Recession and they've been sitting on the sidelines since then missing out on the rebound, and whether this is driving your current mindset.

I've got friends that "dont believe in investing in the stock market". More power to them, but it's scary to think how much longer they will have to work to out earn the power of compounding over a lifetime.

Nothing wrong with real estate investing by the way, but I wouldn't want to start out at 22 by financing several properties and becoming overextended relatively quickly.

gmc4h232
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Re: Success without 401k or Stocks?

Post by gmc4h232 » Tue Sep 24, 2019 10:28 am

Entropy105 wrote:
Tue Sep 24, 2019 10:19 am
BogleMelon wrote:
Tue Sep 24, 2019 10:14 am
Why would you bother maxing your Roth IRA, if the money won't be invested? :?
I plan on investing it in a year or two when I find something I believe in and not just invest at the top of the market and lose half ( yes I know timing the market is bad). The roth will be my traditional retirement fund and since I started early and will max it out year after year I should be on track (for an average joe retirment) if all I ever did was contribute to my roth right? I should have 1.6m in the roth IRA at 65 assuming 6% return and 6k contribution annually.
I dont think you realize the psychological difficulty of market timing. Catching a falling knife is not for the faint of heart....

HomeStretch
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Re: Success without 401k or Stocks?

Post by HomeStretch » Tue Sep 24, 2019 10:33 am

You have a long investing horizon in front of you. Get a solid financial foundation in place before taking high risk with real estate and inflation risk from sitting out of equities due to market timing and avoiding the stock market.

Come up with a reasonable asset allocation between equities and fixed income. Invest your Roth IRA in a low cost total stock market fund (US and maybe International) for highest expected growth. Consider opening a Solo 401k.

Contributing to a Roth IRA each year that is in a money market fund is not enough to support you in retirement. Due to inflation, it will likely be worth less in the future.
Last edited by HomeStretch on Tue Sep 24, 2019 10:35 am, edited 1 time in total.

Topic Author
Entropy105
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Re: Success without 401k or Stocks?

Post by Entropy105 » Tue Sep 24, 2019 10:34 am

gmc4h232 wrote:
Tue Sep 24, 2019 10:25 am
Just curious if your parents got burned by selling low during the Great Recession and they've been sitting on the sidelines since then missing out on the rebound, and whether this is driving your current mindset.

I've got friends that "dont believe in investing in the stock market". More power to them, but it's scary to think how much longer they will have to work to out earn the power of compounding over a lifetime.

Nothing wrong with real estate investing by the way, but I wouldn't want to start out at 22 by financing several properties and becoming overextended relatively quickly.
Nah, My parents are losers and have 200-300k net worth only because they inherited a house. Nobody in my family is financially savy and a lot of them are addicts/alcoholics. I've studied finance on my own a ton. I've just kinda realized that I'll always be able to beat the market by investing in active investments like my business. A 12% annual gain over the long term is crazy (unless your Dave Ramsey with your 15% mutual funds) yet it's easy to make 40% returns with an active business investment and well placed real estate in my area has up to 15% cap rates + appreciation. Just seems to be the wise investment given that I'm young and have time to start over.

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vineviz
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Re: Success without 401k or Stocks?

Post by vineviz » Tue Sep 24, 2019 10:36 am

Entropy105 wrote:
Tue Sep 24, 2019 10:19 am
yes I know timing the market is bad).
If you know it is a bad idea, why are you asking our permission to do it?

Crazy is a strong word to describe your strategy, but "overconfident" and "ill-informed" are two words that springs to mind.

Yes, you should invest in yourself and your own business. But failing to manage your risks through diversification is much more likely to make you homeless than to give you a comfortable retirement.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

BogleMelon
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Re: Success without 401k or Stocks?

Post by BogleMelon » Tue Sep 24, 2019 11:03 am

Entropy105 wrote:
Tue Sep 24, 2019 10:19 am
BogleMelon wrote:
Tue Sep 24, 2019 10:14 am
Why would you bother maxing your Roth IRA, if the money won't be invested? :?
I plan on investing it in a year or two when I find something I believe in and not just invest at the top of the market and lose half ( yes I know timing the market is bad). The roth will be my traditional retirement fund and since I started early and will max it out year after year I should be on track (for an average joe retirment) if all I ever did was contribute to my roth right? I should have 1.6m in the roth IRA at 65 assuming 6% return and 6k contribution annually.
<( yes I know timing the market is bad)>
No you don't! If you know the market timing is bad, you wouldn't try to make it. What you really believe in (and I am not shaming you): "this time is different" and "I know better than the everyone else"

I am not sure if maxing out Roth IRA will be enough for you, or you would need more. I am not sure of the 6% average. I am not sure if you will succeed to outsmart the market by choosing when to get in. I know nothing. For that, I follow bogleheads philosophy myself https://www.bogleheads.org/wiki/Boglehe ... philosophy
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

magicrat
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Re: Success without 401k or Stocks?

Post by magicrat » Tue Sep 24, 2019 11:06 am

Entropy105 wrote:
Tue Sep 24, 2019 10:34 am
[ I've just kinda realized that I'll always be able to beat the market by investing in active investments like my business.
Good luck! Please come back once a year and let us know how it is going. Also be sure to measure your performance against an appropriate benchmark.

KlangFool
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Re: Success without 401k or Stocks?

Post by KlangFool » Tue Sep 24, 2019 11:11 am

Entropy105 wrote:
Tue Sep 24, 2019 9:23 am
I'm 22 net worth 120k (57k checking, 5k HSA, 16k Roth IRA (uninvested), 40k+ other misc), no debt good credit. I'm single living in the cheap midwest and never had help from anyone financially, no college. I'm self employed with a single member LLC. I've been thinking lately - I have no interest in the stock market at large, ETFs, Vanguard funds etc, at least at this point in my life.

I don't want to ever bother with having a 401k or a generic brokerage account. A mentor/ older friend of mine surprised me when he said he doesn't own stocks at all, only real estate and corporate bonds and alternative investments. He's probably worth about 10m in his early 30s. My plan going forward is just to max out my roth IRA (6k) and 2.5k HSA every year and make alternative investments like real estate and reinvest into my business/ other businesses instead of taking the vanguard approach everyone else seems to take. I feel like I should just go all in on a few things rather than spread it around into things I can't control like the stock market. Am I crazy?
Entropy105,

1) Unless you enjoy paying a lot of taxes, Solo/Individual 401K is a very good idea.

2) As to whether you invest your money inside the Solo/Individual 401K, that is a separate question.

<<like real estate and reinvest into my business/ other businesses instead of taking the vanguard approach everyone else seems to take.>>

3) That could works if you could somehow turn them into passive investment. If not, you would be working for your business for the rest of your life. This is my observation from someone coming from a multi-generations business family.

KlangFool

delamer
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Re: Success without 401k or Stocks?

Post by delamer » Tue Sep 24, 2019 11:24 am

Entropy105 wrote:
Tue Sep 24, 2019 10:34 am
gmc4h232 wrote:
Tue Sep 24, 2019 10:25 am
Just curious if your parents got burned by selling low during the Great Recession and they've been sitting on the sidelines since then missing out on the rebound, and whether this is driving your current mindset.

I've got friends that "dont believe in investing in the stock market". More power to them, but it's scary to think how much longer they will have to work to out earn the power of compounding over a lifetime.

Nothing wrong with real estate investing by the way, but I wouldn't want to start out at 22 by financing several properties and becoming overextended relatively quickly.
Nah, My parents are losers and have 200-300k net worth only because they inherited a house. Nobody in my family is financially savy and a lot of them are addicts/alcoholics. I've studied finance on my own a ton. I've just kinda realized that I'll always be able to beat the market by investing in active investments like my business. A 12% annual gain over the long term is crazy (unless your Dave Ramsey with your 15% mutual funds) yet it's easy to make 40% returns with an active business investment and well placed real estate in my area has up to 15% cap rates + appreciation. Just seems to be the wise investment given that I'm young and have time to start over.
By acknowledging that you are young and have time to start over, you also are acknowledging that you may not make a 40% return on your business or invest in well placed real estate.

In other words, you could fail. Success is a combination of hard work, skill, and good luck.

You ignore the good luck part at your peril.

livesoft
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Re: Success without 401k or Stocks?

Post by livesoft » Tue Sep 24, 2019 11:40 am

I love the enthusiasm and outlook! More power to the OP! I don't see any non-recoverable problems with what they have stated. One is always allowed to learn and do different and interesting things. And one is always allowed to change, too. Go for it!
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Re: Success without 401k or Stocks?

Post by abuss368 » Tue Sep 24, 2019 11:41 am

No doubt there are a lot of avenues one can pursue on their journey to build wealth. If you feel better with real estate and other investment then go for it. Build an education regarding these markets and perhaps you can exploit inefficiencies for gain.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Brianmcg321
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Re: Success without 401k or Stocks?

Post by Brianmcg321 » Tue Sep 24, 2019 12:01 pm

Your fear of the stock market is irrational. You should buy some investing books and learn more.

The market is always near the top.
Last edited by Brianmcg321 on Tue Sep 24, 2019 6:45 pm, edited 1 time in total.
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Spirit Rider
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Re: Success without 401k or Stocks?

Post by Spirit Rider » Tue Sep 24, 2019 12:08 pm

OP, just because someone has been successful with a a particular strategy does not mean you will be successful with a similar strategy. Returns above inflation from real estate are almost always due to leverage. Real estate investing has tremendous risks which is only amplified by leverage.

To give up the tax advantages of a 401k with a diversified portfolio to speculate in real estate is an extremely risky endeavor. I used the word speculate, because given your impatience at the age of 22. It appears you are in a rush to accumulate wealth. That is not a recipe for success in real estate.

I have seen far more friends and family fail in real estate than have above market returns. Not to mention real estate tends to be extremely tax inefficient. It is how much of the net return you get to keep, not how much your gross returns are.

The people I have seen be successful in real estate used traditional investments to acquire base wealth and then in middle age branched out to real estate for a portion of their investment portfolio. Don't even get me started on the wisdom of alternative investments.

Living Free
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Re: Success without 401k or Stocks?

Post by Living Free » Tue Sep 24, 2019 12:33 pm

Entropy105 wrote:
Tue Sep 24, 2019 10:19 am
I should have 1.6m in the roth IRA at 65 assuming 6% return and 6k contribution annually.
If you want a 6% return in your Roth IRA then you'll probably need to invest in stocks (or at least REITs, if you favor real estate). Or get a self directed IRA (which I'm not very familiar with) to invest in some other types of investments.

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firebirdparts
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Re: Success without 401k or Stocks?

Post by firebirdparts » Tue Sep 24, 2019 6:15 pm

I think you'll do fine with real estate. Lots of work to it, but you'll find plenty of people do offer services there if you get tired or don't have time.
A fool and your money are soon partners

rascott
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Re: Success without 401k or Stocks?

Post by rascott » Tue Sep 24, 2019 6:29 pm

Entropy105 wrote:
Tue Sep 24, 2019 10:19 am
BogleMelon wrote:
Tue Sep 24, 2019 10:14 am
Why would you bother maxing your Roth IRA, if the money won't be invested? :?
I plan on investing it in a year or two when I find something I believe in and not just invest at the top of the market and lose half ( yes I know timing the market is bad). The roth will be my traditional retirement fund and since I started early and will max it out year after year I should be on track (for an average joe retirment) if all I ever did was contribute to my roth right? I should have 1.6m in the roth IRA at 65 assuming 6% return and 6k contribution annually.

How the heck do you expect to earn 6% a year with money in cash? Something you believe in? No offense, but I can almost guarantee you won't make even 3% over your lifetime with this kind of thinking..... and have a great chance of end up losing a ton.

Use your Roth, e.t.c.... for time proven strategies of long- term index investing. You really think it will matter in 40 years what the SP500 is sitting at today?


If you want to make a career out of RE, do it... it's a great industry. But it's a job... not a passive investment


I was 22 once and thought much like you.... and started buying a bunch of real estate.... like your friend you look like a genius using leverage when it's going up in value. When it crashes you better have a backup plan. I held all my stuff through the recession and came out fine and dandy, but it was ugly on paper for a long while.

Luckily throughout that entire period I was funding index funds every 2 weeks for years regardless of market prices.


Hubris fades with age.

gmc4h232
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Re: Success without 401k or Stocks?

Post by gmc4h232 » Tue Sep 24, 2019 8:01 pm

rascott wrote:
Tue Sep 24, 2019 6:29 pm
Hubris fades with age.
Thank goodness for that! I suspect hubris is in the top 5 risks to your financial well being.

TomCat96
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Re: Success without 401k or Stocks?

Post by TomCat96 » Tue Sep 24, 2019 8:20 pm

Entropy105 wrote:
Tue Sep 24, 2019 9:23 am
I'm 22 net worth 120k (57k checking, 5k HSA, 16k Roth IRA (uninvested), 40k+ other misc), no debt good credit. I'm single living in the cheap midwest and never had help from anyone financially, no college. I'm self employed with a single member LLC. I've been thinking lately - I have no interest in the stock market at large, ETFs, Vanguard funds etc, at least at this point in my life.

I don't want to ever bother with having a 401k or a generic brokerage account. A mentor/ older friend of mine surprised me when he said he doesn't own stocks at all, only real estate and corporate bonds and alternative investments. He's probably worth about 10m in his early 30s. My plan going forward is just to max out my roth IRA (6k) and 2.5k HSA every year and make alternative investments like real estate and reinvest into my business/ other businesses instead of taking the vanguard approach everyone else seems to take. I feel like I should just go all in on a few things rather than spread it around into things I can't control like the stock market. Am I crazy?
We can only speak for the masses.
I can't point to you and say you should invest in real estate or alternative investments without assuming an incredible aptitude on your end.

But as for the masses, the advice here works. Invest in a particular asset allocation of bonds/stocks, stay the course, invest regularly, and you will win at the end.

As for real estate, we're not going to say you're going to lose. But consider the advice for the masses is all we can give.
The question then is, Is it in general good advice for people to be making alternative investments or reinvesting into something else other than a stock bond basic asset allocation. And the answer is no.

You're not crazy. But if you want to go a different path, your success will depend on factors particular to you specifically.

Hubris
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Re: Success without 401k or Stocks?

Post by Hubris » Tue Sep 24, 2019 8:38 pm

gmc4h232 wrote:
Tue Sep 24, 2019 8:01 pm
rascott wrote:
Tue Sep 24, 2019 6:29 pm
Hubris fades with age.
Thank goodness for that! I suspect hubris is in the top 5 risks to your financial well being.
That’s me! Sort of like Mayhem who decided to take a paycheck working for State Farm.

Scooter57
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Re: Success without 401k or Stocks?

Post by Scooter57 » Tue Sep 24, 2019 9:19 pm

If you have what it takes to create your own business and make it succeed you don't need to gamble on buying shares of companies over which you have no control. The idea that salaried work is safer turned out to be a mirage for many of my leading edge boomer contemporaries.

To succeed at your own business you need to study how business works. Learn accounting and marketing, and find a customer base whose needs you understand. It isn't easy. But that is the path I took in life. I invest very conservatively but most of our wealth comes from several profitable family businesses.

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ThereAreNoGurus
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Re: Success without 401k or Stocks?

Post by ThereAreNoGurus » Tue Sep 24, 2019 9:36 pm

Entropy105 wrote:
Tue Sep 24, 2019 9:23 am
Am I crazy?
I don't think so.

I know far more people who made (and are making) their wealth passively investing in real estate than the stock market. Sure it takes some work, but I don't know of too many investments where you can get other people to pay-off your debt. Sure there are risks, but you are young. If you are aware of those risks and willing to take them and the consequences of possible failure, then I say sure, try it.

BTW, I have no interest in real estate, never invested in it, other than my primary residence.
Trade the news and you will lose.

usagi
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Re: Success without 401k or Stocks?

Post by usagi » Tue Sep 24, 2019 11:38 pm

Just a few thoughts, OP, you crack me up…the arrogance of youth not only on display but flying as your standard, pretty cool in these days of males with too much soy in their diet. In some ways you remind me of a me long ago, but I never would have called my parents losers in public, even if they were; that boy, was very, very bad. That aside there really are three legal ways to approach winning, you clearly are not suited for two of them (either was I) so you are left doing what you are doing which it the privilege of youth. My only suggestion is, if you get to be 30-32 years of age and not where you wanted to be it may be time to eat crow and join the herd, keep that attitude and improve on what the herd does; you will be fine. That was what I ended up doing. Me, serial entrepreneur, the road less traveled. I admire your fire, I hope it works out for you.
Last edited by usagi on Wed Sep 25, 2019 1:09 am, edited 1 time in total.

MotoTrojan
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Re: Success without 401k or Stocks?

Post by MotoTrojan » Wed Sep 25, 2019 12:11 am

Simply... yikes.

DesertDiva
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Re: Success without 401k or Stocks?

Post by DesertDiva » Wed Sep 25, 2019 12:12 am

Yes you are crazy, but that will improve with some Bogleheads education 8-)

Regarding your “business” — it sounds like you are either trying to get into a real estate investing or a similar scheme that was presented to you. I’m assuming your older friend in his 30s who claims to be a multi-millionaire is your mentor/recruiter.

I’m also guessing that your 30-something friend is holding onto a sizable real estate portfolio and probably is deep in debt (and therefore has a net worth that is far less than he wants you to believe). He is telling you how much smarter he is than everyone else with his “methods” or “systems”. Your friend thinks he can reinvent the wheel because he has something figured out that seems like a sure thing. And he insists he knows better than those who are older than him who have invested in the stock market. Maybe I’m wrong but something tells me I not.

He may have led you to believe that hard work and effort will lead to certain success and that’s entirely possible. At your age, what you and your colleagues don’t realize is that life seldom follows a straight line. Many things can happen that can derail your plans. Tenants can stop paying their rents and may even sue you for frivolous reasons. Market conditions may change (e.g., interest rates rise, maintenance costs increase). As you get older, you could find yourself with costly family responsibilities or even get seriously ill. I’m not saying this to be a downer. But reality is that life will happen to you in one way or another and your “business” aspirations may not be what you planned. This has happened to many, many generations of well-meaning folks who have come before you.

To succeed, you need goals and a plan of action. If you aren’t going to college, have you considered learning a skilled trade? That would be a good complement to your real estate—or whatever this business is—that you are in. It could provide a steady income, a route to self-employment and building a business, then you could supplement it with another stream of income like real estate.

My next point is that investing will help you reach your goals, not hinder you. It is a long-term mechanism to convert your income into income-producing assets. When you can’t work, your investments support you. Would you be more successful simply owning 1 small business (yours) or hundreds of established businesses run by older, more experienced, educated teams of management across a variety of industries? Investing in an S&P 500 Index Fund and a global index fund gives you that level of diversity. The Bogleheads strategy is long-term financial synergy.

The idea that investing in real estate is preferable to investing in the stock market because you have “more control” over your investment is flawed logic. That idea is heavily promoted by a for-profit real estate website that gets mentioned in this forum. The truth is that counting in yourself and your limited abilities won’t get you as far. You are only one person. And you control far less than you would like to believe.

Since you are brand new to this board, I challenge you to read the following:

• The wiki pages on this website - there is a “Getting Started section. It will give you a wholistic view of your finances
• “If You Can” by William Bernstein - geared towards young adults. You can find it for free on the internet
• “The Little Book of Common Sense Investing” by Jack Bogle.

The above resources will help educate you, which in turn, will help you challenge your fears. Hopefully it will also help you to appreciate that you are in an enviable position — that of being young and having the “time value of money” work for you — as long as you are willing to invest.

Next, take some time to carefully create an IPS for yourself (you will find the explanation of it on this website). This will serve as an invaluable blueprint going forward. Come back with any further questions.

Best,
DesertDiva 🌵👩‍🎤

rascott
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Re: Success without 401k or Stocks?

Post by rascott » Wed Sep 25, 2019 1:15 am

I'll add...

@22 I would take every reasonable risk I could. You have nothing really to lose. Other than your credit score.

Get on Bigger Pockets and learn everything you can in the next year. And then go actually do something... it's the best way to really learn. Don't get paralysis. I bought my first investment property at 22, 6 months out of college, maybe $5k to my name. It was a disaster..... my 3 month project became 15 months. It quickly went from fun to not fun.

But I learned a ton, and the next one was easier... and the next one was much easier.

You learn by doing in this world, not by reading.


The returns can be tremendous, but it's a business that needs run like one. I actually dream of the day when I can cash out and go totally passive into "normal" investments.

actuallyxy
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Re: Success without 401k or Stocks?

Post by actuallyxy » Wed Sep 25, 2019 3:11 am

Make sure this mentor is not trying to rope you into an MLM, a pyramid scheme or another type of scam.

cherijoh
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Re: Success without 401k or Stocks?

Post by cherijoh » Wed Sep 25, 2019 5:17 am

Entropy105 wrote:
Tue Sep 24, 2019 10:19 am
BogleMelon wrote:
Tue Sep 24, 2019 10:14 am
Why would you bother maxing your Roth IRA, if the money won't be invested? :?
I plan on investing it in a year or two when I find something I believe in and not just invest at the top of the market and lose half ( yes I know timing the market is bad). The roth will be my traditional retirement fund and since I started early and will max it out year after year I should be on track (for an average joe retirment) if all I ever did was contribute to my roth right? I should have 1.6m in the roth IRA at 65 assuming 6% return and 6k contribution annually.
You aren't going to get 6% returns unless you invest in the broad market IMO. The real estate market is also near its peak and softening in some geographic areas. People who are doing well in rental RE now bought their properties after the housing market crash.

PQ12$
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Re: Success without 401k or Stocks?

Post by PQ12$ » Wed Sep 25, 2019 5:33 am

Hi OP - Based on the comments about your surroundings/family, it sounds like you have pulled yourself up and out of a difficult environment. My bet is this has taken incredible persistence, focus and hard work. And it will continue to because nothing is given to you, you have to take it/make it. You mention a friend/mentor who has been successful and it sounds like they are wired like you.

I am not surprised you are reluctant to put money into anything you can't see, touch or effect in some way. You are "active" and suspicious of what you can't control. I too share your suspicion and mistrust of the stock market and the people who run it.

Just recognize that this is a "cognitive bias" of sorts. It is making it difficult to see the incredible track record of compound returns in the stock market over time. Steady investment, broad diversification, low fee index funds is a high percentage play.

Keep doing what you are doing, but as a hedge, invest 10% of your salary (or whatever # you like, just set it and forget it) in a low cost target date retirement fund. Don't bother to ever look at your balance. Then keep crushing it out in the real world and let's reconvene in 30 years. All historic data suggests you will be glad you did.

columbia
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Re: Success without 401k or Stocks?

Post by columbia » Wed Sep 25, 2019 5:37 am

Crazy? No; everyone has a different risk tolerance.

You will, however, have a very difficult time saving enough money for retirement, if you don’t take on at least some stock market risk.

To make this constructive, given your current aversion to stock market risk...

Perhaps you could start out by owning one of these funds:

Vanguard Target Retirement Income Fund
https://investor.vanguard.com/mutual-fu ... file/VTINX

Wellesley Income:
https://investor.vanguard.com/mutual-fu ... file/VWINX

aristotelian
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Re: Success without 401k or Stocks?

Post by aristotelian » Wed Sep 25, 2019 9:25 am

Yes, your proposed strategy is not diversified and you are leaving money on the table by failing to take advantage of tax deferral. This is a high risk plan and if it succeeds the government will eat much of the benefit.

DesertDiva
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Re: Success without 401k or Stocks?

Post by DesertDiva » Wed Sep 25, 2019 11:12 am

aristotelian wrote:
Wed Sep 25, 2019 9:25 am
Yes, your proposed strategy is not diversified and you are leaving money on the table by failing to take advantage of tax deferral. This is a high risk plan and if it succeeds the government will eat much of the benefit.
+1

bloom2708
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Re: Success without 401k or Stocks?

Post by bloom2708 » Wed Sep 25, 2019 11:34 am

Entropy105 wrote:
Tue Sep 24, 2019 9:23 am
I'm 22 net worth 120k (57k checking, 5k HSA, 16k Roth IRA (uninvested), 40k+ other misc), no debt good credit. I'm single living in the cheap midwest and never had help from anyone financially, no college. I'm self employed with a single member LLC. I've been thinking lately - I have no interest in the stock market at large, ETFs, Vanguard funds etc, at least at this point in my life.

I don't want to ever bother with having a 401k or a generic brokerage account. A mentor/ older friend of mine surprised me when he said he doesn't own stocks at all, only real estate and corporate bonds and alternative investments. He's probably worth about 10m in his early 30s. My plan going forward is just to max out my roth IRA (6k) and 2.5k HSA every year and make alternative investments like real estate and reinvest into my business/ other businesses instead of taking the vanguard approach everyone else seems to take. I feel like I should just go all in on a few things rather than spread it around into things I can't control like the stock market. Am I crazy?
Kind of crazy. Yes.

Inflation will eat up your Roth IRA. Earnings come from dividends and growth. Not investing in some stocks (30-50% at least?) means low earnings/growth. It means the advantage of the Roth is lost. Tax free earnings. 40 years from now, you want lots of earnings. That means income to draw on.

You have an opportunity to "change the family tree" and you are scared or something. How did you wind up on Bogleheads and decide to create an account with no desire for stocks or the stock market?

You are obviously a good saver. You have 40 years (62) before you might need the money for retirement. At least invest some of that.

Pre-tax saving in a 401k type plan (deferring federal and state tax to 40 years down the road or more) is a great way to "save more".

If you did $19k to pre-tax 401k and $6k to Roth IRA and invested conservatively at 50% stock index funds and 50% bonds, then you have a great floor of retirement. Anything above that and an Emergency Fund, dedicate to whatever you want. Real estate, rentals. Really no need for a taxable/brokerage account until you are maxing 401k pre-tax, Roth IRA and HSA. As your salary grows, you might end up with way more money to save down the road.

Just pick the Total World stock index + Total US Bond index in Roth. 50-50 split if you can't decide. If you have or get a 401k, pick a Target Date or 1 or 2 index funds and stash away.

We can't change your mind for you. You an stay the course and miss the opportunities of the next 40 years or jump the shark and get in. You can still do the rentals (a tough job) or find other ways to invest. Good luck!
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

wolf359
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Re: Success without 401k or Stocks?

Post by wolf359 » Wed Sep 25, 2019 12:36 pm

Entropy105 wrote:
Tue Sep 24, 2019 10:19 am
BogleMelon wrote:
Tue Sep 24, 2019 10:14 am
Why would you bother maxing your Roth IRA, if the money won't be invested? :?
I plan on investing it in a year or two when I find something I believe in and not just invest at the top of the market and lose half ( yes I know timing the market is bad). The roth will be my traditional retirement fund and since I started early and will max it out year after year I should be on track (for an average joe retirment) if all I ever did was contribute to my roth right? I should have 1.6m in the roth IRA at 65 assuming 6% return and 6k contribution annually.
I think it's a good idea to fully fund a Roth IRA year after year, with the objective of getting an average joe retirement as a backup plan.

HOWEVER, I'm assuming that you projected having $1.6M at age 65 by using a compound interest calculator. That's based on getting 6% return each year. The actual market does not return 6% each year. It's all over the map. And if you've been holding it in cash, you don't get to project market returns. Your return on cash is 0-2%. Rerun your calculations with 1% compounded returns. Average Joe is beating the pants off of you.

If you're going to commit to investing in real estate with most of your money, and run a traditional investment account as a backup, then do it. Pick the Vanguard Target Date index fund with the year of your retirement on it (or as close as you can get.) Set it up in auto deposit, and let the fund do the rest. Why are you worried about the market dropping by 50% if you're not going to need the money for 40 years? If the market drops, ignore it and focus on your business. It looks like you've already lost 2-3 years of compounding. It's only a small amount of money, and it's a backup plan. So GET STARTED and LET IT DO ITS THING.

If you ever do work for someone else and have access to a 401-k, make sure you contribute enough to get their match. Otherwise you're leaving money on the table.

When getting started in real estate, you need taxable funds available. Go to Bigger Pockets and look up the BRRRR method. If you accumulate enough money to buy and rehab a house outright, you buy the house, rehab it, rent it out, then refinance it to get the money out. The benefit of doing it that way is that you get better deals by buying the house in cash. When you refinance it, you're borrowing against a house that is producing income and is post-rehab (higher assessed value.) You then re-use your capital to buy another house and repeat it.

This means you need to start with a lot of taxable funds. But hedge your bets. If you don't succeed by a certain age or within a certain amount of time, you should start a solo 401-k and start squirreling away some money in index funds. If you do start succeeding, redirect some of your excess profits to index funds as well. This gives you liquidity and an exit plan.

Grt2bOutdoors
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Re: Success without 401k or Stocks?

Post by Grt2bOutdoors » Wed Sep 25, 2019 12:55 pm

Entropy105 wrote:
Tue Sep 24, 2019 10:19 am
BogleMelon wrote:
Tue Sep 24, 2019 10:14 am
Why would you bother maxing your Roth IRA, if the money won't be invested? :?
I plan on investing it in a year or two when I find something I believe in and not just invest at the top of the market and lose half ( yes I know timing the market is bad). The roth will be my traditional retirement fund and since I started early and will max it out year after year I should be on track (for an average joe retirment) if all I ever did was contribute to my roth right? I should have 1.6m in the roth IRA at 65 assuming 6% return and 6k contribution annually.
Returns are not linear. You will likely have much less in your account, you'll only truly know when you get closer to age 50 if you are on track for that sum of money.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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whodidntante
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Re: Success without 401k or Stocks?

Post by whodidntante » Wed Sep 25, 2019 12:55 pm

I think almost everyone would be better off if they can buy stocks early in their life and continue buying through their accumulation phase. But doing that requires high conviction that stocks are a good investment, which you obviously don't have, so you are the exception to almost everyone. So sure, buy some real estate, and be prepared to save more since real estate has a national average price appreciation of 1%.

DesertDiva
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Re: Success without 401k or Stocks?

Post by DesertDiva » Wed Sep 25, 2019 1:14 pm

bloom2708 wrote:
Wed Sep 25, 2019 11:34 am
How did you wind up on Bogleheads and decide to create an account with no desire for stocks or the stock market?
+1 Perhaps a troll?

barnaclebob
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Re: Success without 401k or Stocks?

Post by barnaclebob » Wed Sep 25, 2019 1:19 pm

Entropy105 wrote:
Tue Sep 24, 2019 10:34 am
Nah, My parents are losers and have 200-300k net worth only because they inherited a house. Nobody in my family is financially savy and a lot of them are addicts/alcoholics. I've studied finance on my own a ton. I've just kinda realized that I'll always be able to beat the market by investing in active investments like my business. A 12% annual gain over the long term is crazy (unless your Dave Ramsey with your 15% mutual funds) yet it's easy to make 40% returns with an active business investment and well placed real estate in my area has up to 15% cap rates + appreciation. Just seems to be the wise investment given that I'm young and have time to start over.
You sound like someone who has bought into a get rich quick scheme. Good luck.

alex_686
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Re: Success without 401k or Stocks?

Post by alex_686 » Wed Sep 25, 2019 1:59 pm

DesertDiva wrote:
Wed Sep 25, 2019 1:14 pm
bloom2708 wrote:
Wed Sep 25, 2019 11:34 am
How did you wind up on Bogleheads and decide to create an account with no desire for stocks or the stock market?
+1 Perhaps a troll?
I would give them the benefit of the doubt. Many of a Boglehead have internalized the assumptions of passive investing without being able to articulate or critical understand them. It is important to know the strengths and weaknesses of them as well as alternative investment approaches. People who have gotten rich by passive or real estate investing think that the path they took is obvious and easy when it is not.

Point
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Re: Success without 401k or Stocks?

Post by Point » Wed Sep 25, 2019 2:10 pm

Well, I've been there where you are, then I changed my tune at age 27. At 64, I'm in great financial shape, retired, set for life.

My suggestion: you take half your assets, open a vanguard account, and use the 3 fund strategy.

Come back in 5 years and see which process is working best for you.

DesertDiva
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Re: Success without 401k or Stocks?

Post by DesertDiva » Wed Sep 25, 2019 2:40 pm

alex_686 wrote:
Wed Sep 25, 2019 1:59 pm
DesertDiva wrote:
Wed Sep 25, 2019 1:14 pm
bloom2708 wrote:
Wed Sep 25, 2019 11:34 am
How did you wind up on Bogleheads and decide to create an account with no desire for stocks or the stock market?
+1 Perhaps a troll?
I would give them the benefit of the doubt. Many of a Boglehead have internalized the assumptions of passive investing without being able to articulate or critical understand them. It is important to know the strengths and weaknesses of them as well as alternative investment approaches. People who have gotten rich by passive or real estate investing think that the path they took is obvious and easy when it is not.
I did try to give him the benefit of the doubt - I wrote a lengthy post on this earlier and sincerely hopes he takes it to heart, immediately followed by a "jump into real estate with all you've got regardless of the consequences" proponent. That timing makes me a little suspicious.

If OP does NOTHING else, he should read "If You Can" and use the resources on this site, along with other posts in this thread regarding the need to invest.

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willthrill81
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Re: Success without 401k or Stocks?

Post by willthrill81 » Wed Sep 25, 2019 4:03 pm

Truth be told, investing in just REITs and corporate bonds, especially long-term and high-yield (aka 'junk') bonds, would have historically been perfectly fine, and you may have access to one or both in your 401k (certainly your IRA).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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whodidntante
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Re: Success without 401k or Stocks?

Post by whodidntante » Wed Sep 25, 2019 6:13 pm

Point wrote:
Wed Sep 25, 2019 2:10 pm
Well, I've been there where you are, then I changed my tune at age 27. At 64, I'm in great financial shape, retired, set for life.

My suggestion: you take half your assets, open a vanguard account, and use the 3 fund strategy.

Come back in 5 years and see which process is working best for you.
Running a horse race for five years is a terrible way to evaluate investment strategy in my opinion. What is the correct course of action if investment A is down 20% while investment B is up 10%? Answer: not enough information

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willthrill81
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Re: Success without 401k or Stocks?

Post by willthrill81 » Wed Sep 25, 2019 7:35 pm

whodidntante wrote:
Wed Sep 25, 2019 6:13 pm
Point wrote:
Wed Sep 25, 2019 2:10 pm
Well, I've been there where you are, then I changed my tune at age 27. At 64, I'm in great financial shape, retired, set for life.

My suggestion: you take half your assets, open a vanguard account, and use the 3 fund strategy.

Come back in 5 years and see which process is working best for you.
Running a horse race for five years is a terrible way to evaluate investment strategy in my opinion. What is the correct course of action if investment A is down 20% while investment B is up 10%? Answer: not enough information
I totally get your point. But five years of managing rental properties (i.e. possibility mentioned by the OP) may feel like an eternity to some people.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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abuss368
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Re: Success without 401k or Stocks?

Post by abuss368 » Wed Sep 25, 2019 8:00 pm

Have you considered investing in Vanguard US REIT and Vanguard International REIT? We have invested in these funds for many years and they seem to compliment each other. Before that during our stock picking days, we invested in individual REITs. They have worked well.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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abuss368
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Re: Success without 401k or Stocks?

Post by abuss368 » Wed Sep 25, 2019 8:00 pm

Both Vanguard REIT funds paid nice dividends for the month.

Whatever you decide to do, the most important part is to stay the course.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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