I'm in my late 20s, in a long term relationship, no kids, no money I can count on from my parents, and have ~70K sitting idle in my bank account. My goal is to preserve it, defend against inflation, and in general being responsible with it.
I could open a savings account and let the bank take care of it, but it looks to me that managing savings is not rocket science: ETF / index fund should do the trick. And I could save in fees. Also, I'd like to learn.
Am I right? How can I learn how to manage my finances? What tools to use, what simple strategies to pursue, and whatnot. Tried to Google it / find YT videos but it's all a huge content marketing mess. Everyone pitching "how to retire early" or "how to make money in the stock market". I'm not interested: I just want to be proactive and prepared with my personal finances, so that in 10 years from now I can buy a house (not interested in taking a mortgage now: I value flexibility more) and take care of my potential future family.
Would love to hear your strategies and your advice on how I can learn.
2. Learn to Budget if you don’t already
3. Max out retirement accounts
4. Place remainder in index funds; S&P is a great one to start with
5. Invest some time into learning more about finance
- I highly recommend the 2008 MIT open course by Andrew Lo [0] to learn some fundamentals; options, futures, portfolio theory
- Cost basis
- Capital gains/loss
- Capital Loss write off
- Capital loss carry forward
- Tax Loss harvesting
- Read The bitcoin standard and the Fiat Standard
[0] - https://youtube.com/playlist?list=PLUl4u3cNGP63B2lDhyKOsImI7...
https://www.ramseysolutions.com/retirement/the-national-stud...
"But they didn’t risk their money on single-stock investments or “an opportunity they couldn’t pass up.” In fact, no millionaire in the study said single-stock investing was a big factor in their financial success. Single stocks didn’t even make the top three list of factors for reaching their net worth.
Three out of four millionaires (75%) said that regular, consistent investing over a long period of time is the reason for their success. So, the story about the young computer genius who developed an app that earned millions overnight is the exception, not the rule."
There’s tons of robo investors that do fine. Indexes do fine. Find tax advantages and save a lot more than you spend. It’s controversial but I also suggest buying a house and paying off a mortgage, then buy a more expensive house and pay it off again. A mortgage gives you leverage but paying the mortgage gives you guaranteed returns. You live in your house which has intrinsic value. And being relatively illiquid you won’t be tempted to pull it in a risky direction or spend it. Do it 20 years and you’ll be in a beautiful home that’s fully paid off. If you do it right you can keep the houses along the way and rent them out to build a steady cashflow for eventual retirement.
These are the things I did. But by far investing myself into my career earned me the most, most reliably.
The big index funds like S&P 500 haven't done well because most sectors have been down. In that case you would have lost ~13.3% since the start of the year and half the inflation rate so around 17.45%. You could expect to lose about that much if the current rate continues and inflation stays up. (Hopefully they get better)
Most ETFs have done similar to the index funds.
Normally bonds would do well when the stock market goes down. It's gotten tougher since bonds now need to have a yield higher than inflation. You could try checking out some of the government bond options that are inflation protected like I bonds or treasury inflation protected securities. They take a while to mature though.
If you wanted to try a more active approach, mimicking Berkshire Hathaway's holdings and riding their coattails works. They have a value investing approach which fairs better during down markets. They've also shifted into oil pretty heavily which has been great this year. It's not totally passive since it requires setting up and updating every couple of quarters. It pays a bit better than the fully passive options though.
If you have the long view of investing over decades then a little 10% blip is nothing since things come back over time. Like others have said, the bogglehead approach is pretty solid.
One other thing to watch for is expense ratios on actively managed funds. They tend to chew through your earnings over the long-term.
Read a book about retirement. (Many to choose from here)
Read a book about index funds. (Bogle)
Read a book about bear & bull markets. (Weinstein/Minervini)
Read a book about the mindset of money/finance. (Housel)
Although people can teach you these things and there's plenty of them online trying to do so. You are better suited to developing your own philosophy by reading plenty of books on the topics!
As an example, if you are looking to buy a house within 2 years then I would not recommend investing in ETFs, as short term market volatility may cause you to initially lose value and delay your goal of buying a house.
If your goal is retirement or buying a house in 5+ years then ETFs are a good idea, as the longer the time horizon the less short term volatility impacts you.
Good introduction: https://www.youtube.com/watch?v=T71ibcZAX3I
then buy another 10k next year.
after a year, you can withdraw and if you are making rolling buys then it basically becomes an inflation-protected savings account.
https://www.treasurydirect.gov/indiv/research/indepth/ibonds...
1. Educate yourself in Personal Finances in general
2. As part of #1 above, you will learnt that Personal Finances and Saving and Investing are not one and the same, but 3 different concepts. Hint: Investing is a subset of Saving, and Saving is a subset of Personal Finances.
3. Personal Finances has a lot more to do with your own personality, psychology, behaviors, and priorities than anything else you can learn anywhere.
4. Start by reading Suze Orman's early books, before she became ultra famous. That's for Personal Finances. Savings is nothing more than the delta differential between cash in minus cash out. IMO the more you save, the better. As far as investing is concerned, pick up a few online college-level courses on investing, pay attention to asset allocation/portfolio management. Some would say it's an overkill, I don't. How important is your money and retirement and everything relating to that?
YMMV
https://www.youtube.com/c/cambridgehouseintl1
https://www.youtube.com/user/StansberryMedia
A mix of gold, energy companies and t-bonds should do well during stagflation...
But with 10-year horizon it would be best to stay in cash and patient and informed. There would be a couple of unique opportunities - both macro and event driven. In other words don't be invested in all the time.
That's the worst thing you could do, they don't even match inflation
On big important thing to know is your risk profile, your ability to weather financial storms. Are you a risk taker?
> I'm in my late 20s,
IMHO you should lean on the higher risk investments
And to that end BTC is as low as it's going to be for the next year and change...
If your job is pretty secure, then I think it makes sense to put much or all of your long term savings into an index ETF such as (or exactly as) VTI. Make sure you guys are maxing out any tax advantaged retirement plans available to both of you before putting money into your taxable long term savings.
Savings for short term purchases/emergencies that exceed what a couple of paychecks will pay for can go in things like CD ladders or Series I bonds.
You're right, lots of people, many of whom mainly want to make money from your money, will recommend more complex strategies and products. I started saving before ETFs became a mainstream thing I felt comfortable with, and ended up with a palette of mutual funds before I switched to only buying more VTI, and some of them have done better than VTI over time, and some worse, and each costs more than VTI.
However, I've just coached my son to pile everything into VTI while he debates adding home ownership to his mix.
Pay attention to transaction fees and taxes.
1. Get a reasonable emergency fund (reasonable varies from person to person, but at least 3 months of living expenses is good)
2. Max out tax advantaged investment accounts. Rough priorities, specific ranking again depends on your situation: HSA, matched 401k, Roth IRA, unmatched 401k, anything else (mega backdoor Roth, 529, etc). The Boglehead approach, aka VTSAX & Chill, is pretty good. You can throw everything in a target date retirement account, or manually balance yourself between a US stock fund, international stock fund, and bonds (don't worry too much about bonds when you're in yours 20s)
3. Taxable investment account
4. If you plan on using some of the money in 1-5 years, check out I-bonds as a way to keep up with inflation with no risk... Well OK not no risk, but as long as the US Government doesn't default on its debts the risk is infinitesimally low.
JL Collins's 'Stock Series' is an excellent set of articles / blogs that I've recommended to heaps of people over the years - https://jlcollinsnh.com/stock-series/
It helped me, and in turn my beautiful wife and several friends, properly understand the WHY behind these kind of recommendations. It has expanded over the years - my advice is to read them until they get boring, because the boring ones are probably 2 steps ahead of where you are today. You can return later. Good luck!
Max out 401k
Max out Roth and Trad IRA as applicable
Then Vanguard, Vanguard, Vanguard
If tomorrow a distant relative handed you $70k they’d stuck in a mattress in 1986, you wouldn’t think about inflation or its lack of work over the years.
Saving is being your own distant relative.
Investing is a bet on being smarter than people with enough money to move markets.
It is a bet on beating people whose full time job considers making your $70k theirs a legitimate business practice.
Anyone who has never been skunked by the economy has either been lucky or hasn’t been in very long.
Or to put it another way, looking at returns on each “safe strategy” you list during the Great Recession might be a useful research exercise.