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Old 03-11-2010, 10:34 PM   #1
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Need Help Investing

Hey guys. So random thread, but I have now graduated and been working for almost a year now. After expenses and crap I have saved a decent amount of dough.

Problem is that I dont know much about investing. I feel like an old granny just leaving it there in the bank. Any tips, suggestions, etc. just about where to start in terms of research?


We call out noobs all the time on this forum, but I am beyond noob when it comes to this field.
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Old 03-11-2010, 10:45 PM   #2
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Re: Need Help Investing

Just spend it, didn't you hear the worlds gonna end in 2012?
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Old 03-11-2010, 11:11 PM   #3
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Re: Need Help Investing

My area of expertise. I can help.

This is kind of a fun time for you, I remember thinking that way when I had just gotten a job. Being a finance major I knew how powerful saving and wise investing could be in the long haul. I enjoyed laying out my plan and executing it.

Here's the master plan:

Priority 1: If your employer offers a retirement program where they match your investments, contribute just enough to get the full match out of your employer. But don't yet contribute more until you work your way through the other priorities below. At your age, you should be 100% stocks. Choose mutual funds, or a mix of funds, that expose you to both international stocks and US stocks, small stocks and large stocks. PM me if you want details on selecting mutual funds.

Priority 2: Build a "nest egg" for emergency funding purposes. Everyone should have 6 months worth of basic living expenses saved. In case you get laid off or have some other sort of financial disaster, you save yourself a lot of money in the long run by using savings to cover those things, rather than going into debt to finance them. So tally up your basic living expenses (don't count video game money, going out money, etc. Just rent + utilities + food + car etc.) and figure out what you need socked away for "just in case." Store it in a money market fund (Vanguard) or a high interest savings account (ING) - you want this money to be very safe, after all it is for emergency purposes.

Priority 3: Reduce high-interest debt. Once you have your nest egg built up, start using excess income to pay down credit cards and any other high-interest loans. If you have student loan debt or a mortgage, just make the minimum payments. That stuff is tax deductible, let that float. Instead pay down the credit cards or other loans till they're gone.

Priority 4: Save for a home. Real estate is one of the best investments you can make in the long term, even if you're just buying a condo. The savings on taxes and the long-term buildup of home equity make it WAY better than renting. As you work towards piling your savings, I'd suggest socking it away in the same account as your "nest egg" fund. If you want to add a little more earning power, consider some lower risk bond funds.

Priority 5: Once the above are done and you're a home owner, it's time to get serious about retirement. While still taking advantage of the full match at your employer (if you have one), contribute to a Roth IRA if you qualify. The long-term tax advantage is most favorable. Open the Roth IRA with Fidelity or Vanguard, and select a mix of mutual funds (domestic & international, large & small). Go 100% stock and prepare to ride the roller-coaster. Combining your 401K and Roth IRA contributions, target a total annual contribution of 10% of your salary.

Priority 6: Once all of the above are going swimmingly, do something bad ass for yourself. Get that BMW. Move to a cooler house, whatever. You've earned it by now.

I'm happy to get into details if you wish. Good luck!
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Old 03-11-2010, 11:11 PM   #4
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Re: Need Help Investing

My closest friend is a financial advisor. He works for a small asset management company in Gaithersburg (about $50M in managed assets). Their firm actually got audited recently because they did so well despite the recession. I'd be happy to PM you his info if you're interested.
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Old 03-11-2010, 11:18 PM   #5
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Re: Need Help Investing

And listen to schneed. Great advice, very similar to what my buddy has been telling me.
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Old 03-12-2010, 12:50 AM   #6
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Re: Need Help Investing

you're the UVA guy, shouldn't you be telling us?
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Old 03-12-2010, 08:21 AM   #7
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Re: Need Help Investing

Solid advice from Schneed, not sure there's much more to add.
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Old 03-12-2010, 08:52 AM   #8
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Re: Need Help Investing

Quote:
Originally Posted by Schneed10 View Post
My area of expertise. I can help.

This is kind of a fun time for you, I remember thinking that way when I had just gotten a job. Being a finance major I knew how powerful saving and wise investing could be in the long haul. I enjoyed laying out my plan and executing it.

Here's the master plan:

Priority 1: If your employer offers a retirement program where they match your investments, contribute just enough to get the full match out of your employer. But don't yet contribute more until you work your way through the other priorities below. At your age, you should be 100% stocks. Choose mutual funds, or a mix of funds, that expose you to both international stocks and US stocks, small stocks and large stocks. PM me if you want details on selecting mutual funds.

Priority 2: Build a "nest egg" for emergency funding purposes. Everyone should have 6 months worth of basic living expenses saved. In case you get laid off or have some other sort of financial disaster, you save yourself a lot of money in the long run by using savings to cover those things, rather than going into debt to finance them. So tally up your basic living expenses (don't count video game money, going out money, etc. Just rent + utilities + food + car etc.) and figure out what you need socked away for "just in case." Store it in a money market fund (Vanguard) or a high interest savings account (ING) - you want this money to be very safe, after all it is for emergency purposes.

Priority 3: Reduce high-interest debt. Once you have your nest egg built up, start using excess income to pay down credit cards and any other high-interest loans. If you have student loan debt or a mortgage, just make the minimum payments. That stuff is tax deductible, let that float. Instead pay down the credit cards or other loans till they're gone.

Priority 4: Save for a home. Real estate is one of the best investments you can make in the long term, even if you're just buying a condo. The savings on taxes and the long-term buildup of home equity make it WAY better than renting. As you work towards piling your savings, I'd suggest socking it away in the same account as your "nest egg" fund. If you want to add a little more earning power, consider some lower risk bond funds.

Priority 5: Once the above are done and you're a home owner, it's time to get serious about retirement. While still taking advantage of the full match at your employer (if you have one), contribute to a Roth IRA if you qualify. The long-term tax advantage is most favorable. Open the Roth IRA with Fidelity or Vanguard, and select a mix of mutual funds (domestic & international, large & small). Go 100% stock and prepare to ride the roller-coaster. Combining your 401K and Roth IRA contributions, target a total annual contribution of 10% of your salary.

Priority 6: Once all of the above are going swimmingly, do something bad ass for yourself. Get that BMW. Move to a cooler house, whatever. You've earned it by now.

I'm happy to get into details if you wish. Good luck!
Boo your unsexy advice! Can't he just sink it all into gold and dance his way to the bank? I am sure I saw a guy on TV talking about that late one night. Forget Schneeds measured and long term approach. Go for the big play.
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Old 03-12-2010, 09:53 AM   #9
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Re: Need Help Investing

Quote:
Originally Posted by Schneed10 View Post
My area of expertise. I can help.

This is kind of a fun time for you, I remember thinking that way when I had just gotten a job. Being a finance major I knew how powerful saving and wise investing could be in the long haul. I enjoyed laying out my plan and executing it.

Here's the master plan:

Priority 1: If your employer offers a retirement program where they match your investments, contribute just enough to get the full match out of your employer. But don't yet contribute more until you work your way through the other priorities below. At your age, you should be 100% stocks. Choose mutual funds, or a mix of funds, that expose you to both international stocks and US stocks, small stocks and large stocks. PM me if you want details on selecting mutual funds.

Priority 2: Build a "nest egg" for emergency funding purposes. Everyone should have 6 months worth of basic living expenses saved. In case you get laid off or have some other sort of financial disaster, you save yourself a lot of money in the long run by using savings to cover those things, rather than going into debt to finance them. So tally up your basic living expenses (don't count video game money, going out money, etc. Just rent + utilities + food + car etc.) and figure out what you need socked away for "just in case." Store it in a money market fund (Vanguard) or a high interest savings account (ING) - you want this money to be very safe, after all it is for emergency purposes.

Priority 3: Reduce high-interest debt. Once you have your nest egg built up, start using excess income to pay down credit cards and any other high-interest loans. If you have student loan debt or a mortgage, just make the minimum payments. That stuff is tax deductible, let that float. Instead pay down the credit cards or other loans till they're gone.

Priority 4: Save for a home. Real estate is one of the best investments you can make in the long term, even if you're just buying a condo. The savings on taxes and the long-term buildup of home equity make it WAY better than renting. As you work towards piling your savings, I'd suggest socking it away in the same account as your "nest egg" fund. If you want to add a little more earning power, consider some lower risk bond funds.

Priority 5: Once the above are done and you're a home owner, it's time to get serious about retirement. While still taking advantage of the full match at your employer (if you have one), contribute to a Roth IRA if you qualify. The long-term tax advantage is most favorable. Open the Roth IRA with Fidelity or Vanguard, and select a mix of mutual funds (domestic & international, large & small). Go 100% stock and prepare to ride the roller-coaster. Combining your 401K and Roth IRA contributions, target a total annual contribution of 10% of your salary.

Priority 6: Once all of the above are going swimmingly, do something bad ass for yourself. Get that BMW. Move to a cooler house, whatever. You've earned it by now.

I'm happy to get into details if you wish. Good luck!
Very good info here. The only thing I would add is when investing in your employers retirement program do not put all you money into the companies stock. Think Enron not only did all those people loss their jobs they lost their retirement saving because they had all their money invested in Enron.
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Old 03-12-2010, 10:03 AM   #10
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Re: Need Help Investing

One more thing regarding cash management of your standard checking account and your "emergency nest egg".

To maximize the return on your nest egg cash, you should allocate it properly between your regular checking account and your high-interest savings account or money market fund. At the same time, you want to keep your life simple in this aspect. So I suggest this:

- Figure out what 6 months of expenses amounts too. That's your "nest egg" amount.

- Keep a minimum of $500 - $1000 in your checking account at all times. It will fluctuate up and down based on when you get paid and when you pay your bills, but at its low point the checking account should have $500 in it.

- Keep the rest in your nest egg high interest savings account, so that if you added the balance of your checking account and the balance of your nest egg account, they'd equal 6 months of expenses.

This does not need to be an exact science. But this basic rule of thumb will keep you from having to constantly transfer funds back and forth from nest egg account to checking account. At the same time, you'll be keeping most of your money in the high interest savings account, earning interest on the majority of your emergency stash.
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Old 03-12-2010, 10:10 AM   #11
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Re: Need Help Investing

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Very good info here. The only thing I would add is when investing in your employers retirement program do not put all you money into the companies stock. Think Enron not only did all those people loss their jobs they lost their retirement saving because they had all their money invested in Enron.
Great point, diversification is important. Don't put all your money in one company or even one mutual fund, spread it around so you're invested in US stock funds, international stock funds, small company funds and large company funds.

My favorites for retirement accounts:

Fidelity Contra Fund (large cap US)
Fidelity International Discovery (international stock)
Vanguard Small Cap Index Fund (small cap US stock)

I do a mix of these three. I'm 30, and am about 50% Contra Fund, 25% International Discovery, and 25% VG Small Cap Index. You're young too, so a similar mix is in order for you.

They all keep expense ratios fairly small, which means more money stays in your account. There are lots of other great fund options out there though, you can research on Morningstar to learn more about them. The most important things to look for are the expense ratio (target funds with less than 0.5%), and make sure it's a no-load fund (which is a fee to make the initial investment).
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Old 03-12-2010, 10:18 AM   #12
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Re: Need Help Investing

And one last thing, when you invest in stock, be prepared to ride the roller coaster. You will see your balance go up and down, sometimes drastically, from year to year. In 2008 my account lost 45%. In 2009 it gained 35%. Over the long haul, these big swings tend to even out in your favor, and you end up earning more with stock than you would with bonds.

Stocks are generally a bad idea for any money which you will possibly need to use within 10 years. Once you get within that time horizon, it's time to add some bonds to the mix. That's why you choose very safe investments for your emergency nest egg, and aggressive ones for retirement funds.

You've got a long way towards retirement, so get the earning power of stocks on your side:

A 25 year old investing $3000 per year in stocks, at an average of 8.5% return, will have a balance of $965,000 upon retirement at age 65.

A 25 year old investing the same $3000 per year in bonds, at an average of 6.5% return, will have a balance of $565,000 upon retirement at age 65.

The extra 2% earning power is worth nearly double the $ over a 40-year period.
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Old 03-12-2010, 10:26 AM   #13
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Re: Need Help Investing

Thanks guys for all the feedback. I will send you back responses if i need a bit more information.

I will also go over the specifics this weekend, when i get a breather from work.


As for my UVA background, I am an economics and foreign affairs major. So I know a decent amount economic cycles, consumer behavior, economic theory, etc. I have also taken a couple financial classes in college, but not a ton. Most of my financial classes divulged into discussion of the current financial situation and potential causes. So I do have a general understanding of concepts such as diversification, how i should be 100 stocks now, getting my employer to match my contributions. I am good in terms of the macro, but i need to work on the micro, to put in econ major terms.
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Old 03-12-2010, 10:57 AM   #14
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Re: Need Help Investing

Hoo, good luck. its a crazy world we live in
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Old 03-12-2010, 11:12 AM   #15
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Re: Need Help Investing

do what i did. build up a nice 401k over 5 years or so. have the stock market take a nose dive cutting your 401k in half. then when money gets tight and you need to pay the bills, you can take a loan out against your own 401k with penalties and all!!

i have a real question thoo. should i be putting money back into my 401k now? ive been putting money in my money market account (easier to access if you need some cash) and CDs.
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