Young and Dumb--wanting to start investing

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madison2017
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Young and Dumb--wanting to start investing

Post by madison2017 » Thu Dec 06, 2018 4:04 pm

I'm 23 years old and am looking to start investing with a goal to retire by 65. After reading The Bogleheads Guide it seems that index investing in a Roth IRA would be best for my knowledge level at this time. I thought I would start by investing the IRS max of $6k this year. However, even after reading the book I'm kind of at loss of where to begin. Which company to go with (the book and forums seem partial to Vanguard)? Which funds? And even if it is smart to enter now with this impending bear market, as I don't want to put in $6k and experience an immediate loss (but maybe I'm missing something and that's not the case). Any info provided would be greatly appreciated!

JBTX
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Re: Young and Dumb--wanting to start investing

Post by JBTX » Thu Dec 06, 2018 4:31 pm

madison2017 wrote:
Thu Dec 06, 2018 4:04 pm
I'm 23 years old and am looking to start investing with a goal to retire by 65. After reading The Bogleheads Guide it seems that index investing in a Roth IRA would be best for my knowledge level at this time. I thought I would start by investing the IRS max of $6k this year. However, even after reading the book I'm kind of at loss of where to begin. Which company to go with (the book and forums seem partial to Vanguard)?
You can't go wrong with either Vanguard or Fidelity or even Schwab.


Which funds?
Start with a total market index, or perhaps a target date index fund.
And even if it is smart to enter now with this impending bear market, as I don't want to put in $6k and experience an immediate loss (but maybe I'm missing something and that's not the case). Any info provided would be greatly appreciated!
Honestly, over the next 40 years you probably hope to accumulate in the seven figures. Whether your initial $6000 drops to $5000, $4000 or even $3000 is going to be pretty irrelevant and immaterial over that time frame. Nobody knows when the market will go up and down. Just dive in.

Elena
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Re: Young and Dumb--wanting to start investing

Post by Elena » Thu Dec 06, 2018 4:36 pm

In my opinion, watching those initial $6000 drop will teach you a lot about your personality and could be used to learn your investing style and financial behavior. One becomes resilient.

Flyer24
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Re: Young and Dumb--wanting to start investing

Post by Flyer24 » Thu Dec 06, 2018 4:40 pm

A bear market is actually good for you. It is all about future contributions. A bear market means shares are cheaper and you can accumulate more. Do not even look at your returns. Your focus should be building shares in index funds.

zuzimb
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Re: Young and Dumb--wanting to start investing

Post by zuzimb » Thu Dec 06, 2018 4:59 pm

Also 23, but started investing at 19ish. Started with Vanguard, tried Fidelity, in process of moving everything to Vanguard.

Keep it simple, I started out in a Target Retirement fund (Vanguard 2060 to be exact). Eventually moved to the components once I had the cash to own each fund.

In the grand scheme of things that 6k will hardly be a drop in the bucket (hopefully). If I were just starting out with investing, and I had my immediate cash needs met, I would put it all in something like total US or SP 500. That way you can start learning what your risk tolerance is like. Best to learn now while the stakes are as low as they will ever be.

As it stands I'm at about 80/20 with all assets. EF & possible near term cash being the 20%. All money in retirement accounts are stocks.


Time in the market is what matters most if you are able to stay the course.

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ruralavalon
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Re: Young and Dumb--wanting to start investing

Post by ruralavalon » Thu Dec 06, 2018 5:15 pm

Welcome to the forum :) .

madison2017 wrote:
Thu Dec 06, 2018 4:04 pm
I'm 23 years old and am looking to start investing with a goal to retire by 65. After reading The Bogleheads Guide it seems that index investing in a Roth IRA would be best for my knowledge level at this time. I thought I would start by investing the IRS max of $6k this year.

This maximum for an IRA is $5.5k this year, the maximum is $6k starting 2019.

Is there a work-based plan offered at your employer, like a 401k or 403b? If so is there an employer match offered in that plan? It may be better to start with your work-based plan if available.

madison2017 wrote:
Thu Dec 06, 2018 4:04 pm
However, even after reading the book I'm kind of at loss of where to begin. Which company to go with (the book and forums seem partial to Vanguard)?
For funds and location of accounts I usually suggest
1) Vanguard,
2) Fidelity, or
3) Schwab
in that order of preference.

I prefer using traditional mutual funds (rather than ETFs) , and Vanguard has by far the largest selection of low expense traditional mutual funds offered anywhere. Both Vanguard and Fidelity have a larger selection of low expense index funds than does Schwab. We have all of our investing accounts at Vanguard, and use only Vanguard index funds.

All three offer a wide array of ETFS (Exchange Traded Funds).

I prefer the convenience of having all investing accounts at one place. For banking functions (checking account, debit card, credit cards) we use a bank with a branch near our home.

I like Vanguard's mutual structure, Vanguard is owned by the Vanguard funds, has no other shareholders, and so conflicts of interest with shareholders don't exist.

Both Fidelity and Schwab have local customer service offices in some cities, but Vanguard does not. None have a local office near me, so that was not a factor in my choice.

A local customer service office is important for some, but in my opinion not at all necessary. We have had no problems with the rare phone consultations that were necessary. I call Vanguard once per year at most, some years not at all, and always received prompt, accurate, professional advice and service.

Once a reasonable investing plan is set up, it requires almost no attention. Some people prefer the customer service at Fidelity or Schwab.

Schwab does not offer a total international stock index fund, both Vanguard and Fidelity do. Vanguard stock index funds are more tax-efficient, which is important if using a taxable account. Vanguard offers a larger selection of tax-exempt bond funds (including state specific funds) than either Schwab or Fidelity, which is important if using a taxable account and in a high tax bracket. Vanguard offers a small-cap value index fund, but Schwab and Fidelity do not, which is important if interested in value investing. Vanguard money market funds (including the sweep fund) pay a better return than funds at Fidelity or Schwab, which is important for investors who desire a significant cash allocation.

Fidelity and Schwab have no initial minimum investment required, which is helpful for a new investor with a small amount to invest. Most Vanguard funds require an initial minimum investment of $3k, or just $1k for target retirement funds or Vanguard STAR Fund (VGSTX).

There is a lot of personal preference involved in selecting a firm for your accounts.

madison2017 wrote:
Thu Dec 06, 2018 4:04 pm
Which funds?

To start you could consider a single very diversified balanced fund, as an all-in-one investment. Examples include a Vanguard Target Retirement Fund, Vanguard LifeStrategy Growth Fund (VASGX), or Vanguard STAR Fund (VGSTX).


madison2017 wrote:
Thu Dec 06, 2018 4:04 pm
And even if it is smart to enter now with this impending bear market, as I don't want to put in $6k and experience an immediate loss (but maybe I'm missing something and that's not the case). Any info provided would be greatly appreciated!
The time to start is now, don't try to guess what the market will do next.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Fallible
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Re: Young and Dumb--wanting to start investing

Post by Fallible » Thu Dec 06, 2018 6:49 pm

madison2017 wrote:
Thu Dec 06, 2018 4:04 pm
I'm 23 years old and am looking to start investing with a goal to retire by 65. After reading The Bogleheads Guide it seems that index investing in a Roth IRA would be best for my knowledge level at this time. I thought I would start by investing the IRS max of $6k this year. However, even after reading the book I'm kind of at loss of where to begin. Which company to go with (the book and forums seem partial to Vanguard)? Which funds? And even if it is smart to enter now with this impending bear market, as I don't want to put in $6k and experience an immediate loss (but maybe I'm missing something and that's not the case). Any info provided would be greatly appreciated!
Welcome to the forum.

You've started off well by reading the Bogleheads "Guide" book and coming to the forum, so now continue with the BH wiki's "Getting started" page, which will answer many of your questions and then some:

https://www.bogleheads.org/wiki/Getting_started
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

averagedude
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Re: Young and Dumb--wanting to start investing

Post by averagedude » Thu Dec 06, 2018 7:02 pm

VTSAX, total world, or a target date fund. Really doesnt matter, the key is to start and don't procrastinate. I would suggest you do it tomorrow. Many of the successful investors first investments on this forum were terrible, but they didn't make the worst mistake which was never starting. I urge you not to have paralysis from analysis and make a decision on a fund or etf. You will be so far ahead of your peers if you do so.

MotoTrojan
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Re: Young and Dumb--wanting to start investing

Post by MotoTrojan » Thu Dec 06, 2018 7:04 pm

I’d invest for 2018 Roth ($5500 max) first. You have until April 15th. This way if you want to save more in 2019 you have Roth space.

I’d use a target fund. Don’t fret any drops.

Mickey7
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Re: Young and Dumb--wanting to start investing

Post by Mickey7 » Thu Dec 06, 2018 8:16 pm

Welcome to the forum Madison2017

You are quite correct in your belief that a RothIRA should be a good place for your first contribution. Others have already listed good funds to receive your initial contributions such as Life Strategy. Targetdate or Star to begin. Do take the time to read over the previously noted wiki links.

Since you are here you have probably noticed that for any question posed that there will be more ways to skin a cat than there are cats in the world, so be patient and find out what will work best for you to feel most comfortable. Please make sure that you have some sort of Emergency Fund to prevent liquidating funds when a money need appears. There is nothing worse for a person getting into investing than having to get out of it when an emergency rears it's ugly head. The size of the fund will be up to you.

One of the most important things to remember when you begin your investing in index funds is that you are buying shares of that fund. If the market goes down, you still have those funds. You really only ever lose money when you sell when the market is down. With your time horizon therefore it doesn't matter what happens to the market now, but what the market will be years or decades from now.

Find a comfort level for yourself and stay the course.

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BL
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Re: Young and Dumb--wanting to start investing

Post by BL » Fri Dec 07, 2018 2:39 am

Agree that starting out with Vanguard Target Date Fund, Life Strategy Growth, or a Total Stock market (alternately S&P 500) is fine. Get paperwork by e mail (online) so there is no low-amount charge.

Here is a good quick read with lots of great info throughout:
https://www.etf.com/docs/IfYouCan.pdf
Note that the 3-fund portfolio mentioned is a common suggestion here for investing. The first two funds above are very similar (just have an extra bond fund).

The important thing is to just get started.

Look up 3-fund portfolio in Wiki for suggestions of specific funds/ETFs at various brokerages that will work to make up this basic portfolio.
Last edited by BL on Fri Dec 07, 2018 9:39 am, edited 1 time in total.

loslebenrl483
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Re: Young and Dumb--wanting to start investing

Post by loslebenrl483 » Fri Dec 07, 2018 8:54 am

Cant go wrong with Vangaurd. Total stock market in a Roth IRA would be a good start. Then you could add bonds as you get older (perhaps in your 30's).

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grabiner
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Re: Young and Dumb--wanting to start investing

Post by grabiner » Fri Dec 07, 2018 10:00 pm

madison2017 wrote:
Thu Dec 06, 2018 4:04 pm
And even if it is smart to enter now with this impending bear market, as I don't want to put in $6k and experience an immediate loss (but maybe I'm missing something and that's not the case).
I don't know which way the market will go. However, you can minimize your regret from getting in at the wrong time by dollar-cost averaging; instead of investing $6000 all at once, put the $6000 into the IRA now in a money-market fund, and move $1000 from the money-market fund into your appropriate portfolio every month for the next six months.

A natural choice for an investor who plans to retire in 42 years is Vanguard Target Retirement 2060. This is a well-diversified fund, holding US stocks, foreign stocks, and bonds. It is mostly stocks now, because you have a long time to recover if the market falls; by your planned retirement in 2060, it will hold less in stocks because you have less ability to take risk. (This is not a permanent decision; you can move money freely between funds in an IRA. If you decide in 2047 that you will retire in three years, you can move the money from the 2060 fund to the 2050 fund then.)
Wiki David Grabiner

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BL
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Re: Young and Dumb--wanting to start investing

Post by BL » Sat Dec 08, 2018 11:21 am

grabiner wrote:
Fri Dec 07, 2018 10:00 pm
madison2017 wrote:
Thu Dec 06, 2018 4:04 pm
And even if it is smart to enter now with this impending bear market, as I don't want to put in $6k and experience an immediate loss (but maybe I'm missing something and that's not the case).
I don't know which way the market will go. However, you can minimize your regret from getting in at the wrong time by dollar-cost averaging; instead of investing $6000 all at once, put the $6000 into the IRA now in a money-market fund, and move $1000 from the money-market fund into your appropriate portfolio every month for the next six months.

A natural choice for an investor who plans to retire in 42 years is Vanguard Target Retirement 2060. This is a well-diversified fund, holding US stocks, foreign stocks, and bonds. It is mostly stocks now, because you have a long time to recover if the market falls; by your planned retirement in 2060, it will hold less in stocks because you have less ability to take risk. (This is not a permanent decision; you can move money freely between funds in an IRA. If you decide in 2047 that you will retire in three years, you can move the money from the 2060 fund to the 2050 fund then.)
+1
Above grabiner is a poster I pay particular attention to and follow.

Good advice above.

Minor point: 2018 limit is 5500 which can be added until April 2019. Then you can also add 6000 for next year starting Jan. 1, 2019 until April 2020. There is a bit of overlap there which means you will be asked which year you are contributing for, until you max this year's contribution.

abc132
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Re: Young and Dumb--wanting to start investing

Post by abc132 » Sat Dec 08, 2018 12:25 pm

The important thing is that you invest regularly with low fees, accept that you will do it all wrong (and that this is OK), and learn to accept the short term uncertainty of investing.

1. Pick a single fund (any of target date, total world, us 500, total us) and make sure they are very low cost.
2. Develop a routine to fill that Roth and stick to it regardless of what is happening in the short term
3. Learn about yourself and your risk tolerance. Do you panic every time the market is down 5%, or does that routine of investing give you confidence in getting through any downturn? Do you find yourself wanting to chase past performance?
4. Develop an emergency fund

It will be at least 5 years before having anything more complex is likely to be beneficial:

5. Read enough amount investing to make you confident in your asset allocation
6. In 5-10 years you will have enough assets and understanding to consider the best asset allocation for you. Write down your plan, adjust to this asset allocation (if needed), and stick to this plan.

Don't worry about #5 or #6 right now.

Time in the market, continued investments, low costs, and having an emergency fund are the key. You don't need to know much at all to accomplish these four things.

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