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25 year old ready to open first account, please help!
11-26-2013, 01:32 PM
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#1
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Dryer sheet wannabe
Join Date: Nov 2013
Location: Rancho Santa Margarita
Posts: 15
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25 year old ready to open first account, please help!
Hello,
I'm 25 years old and currently work full time. Long story short, I'm finally ready to invest some of my hard earned money into the money market to kick start my Early Retirement Fund.
Below is an outline of my current/future siutation/plan:
- I have $3,000 that I would like to use as my initial investment
- I would like to retire at the age of 55-60 (year 2043-2048)
- I make $36,000 anually before taxes
- At my current rate, after expenses, I'm able to save about $8,000 a year
- My company matches 5% of my 401K contributions
I've had very little knowledge in regards to investing and still have much to learn. The past month I've been doing a lot of research on IRAs, Roths, and Mutual Funds. I've become interested in opening a Vanguard Target Retirement Fund, particulary with the VTIVX, and setting it up within a Roth IRA. I
I suppose my question then would be, if you were in my shoes, would you consider investing in this mutual fund? If not, what would you suggest I do with my $3,000 to kick start my Early Retirement Fund? Any input would be much appreciated, thank you
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11-26-2013, 02:07 PM
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#2
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Full time employment: Posting here.
Join Date: Jan 2005
Posts: 587
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Are you contributing to your 401K yet? Opening up a Roth Ira at Vanguard is a great addition. If I were your age I would use my Roth Ira for a stock fund.
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11-26-2013, 02:14 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,304
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Same reaction as tinlizzy, I'd enroll in the company 401k and contribute at least enough to get the maximum company match if not more. A Roth IRA is a great next step, and while you're just beginning to build a portfolio, a broad balanced mutual fund like the Vanguard Target Retirement Fund is a very good choice. No reason to think about a more elaborate asset allocation until your portfolio grows some.
Educate yourself, the more you know and the less you rely on paid or free advice from others, the better. Unfortunately you will inevitably get some good and some bad advice, and unless you educate yourself, you won't be able to separate good from bad. Investment Books
Oh, and congrats, you're off to a very good start with saving & investing - you're at least 5 years smarter than I was way back when...
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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11-26-2013, 02:20 PM
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#4
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Dryer sheet wannabe
Join Date: Nov 2013
Location: Rancho Santa Margarita
Posts: 15
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Thanks for your response!
I understand at my age I should (and am) be willing to take on a little more risk in hopes for greater returns. However, I feel skeptical about investing soley on a stock fund because of the higher volatility associated with it.
Are you considering that I should invest in a stock fund given my financial situation? Or because of my youth I shouldn't be afraid to do so?
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11-26-2013, 02:28 PM
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#5
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Dryer sheet wannabe
Join Date: Nov 2013
Location: Rancho Santa Margarita
Posts: 15
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Quote:
Originally Posted by Midpack
Same reaction as tinlizzy, I'd enroll in the company 401k and contribute at least enough to get the maximum company match if not more. A Roth IRA is a great next step, and while you're just beginning to build a portfolio, a broad balanced mutual fund like the Vanguard Target Retirement Fund is a very good choice. No reason to think about a more elaborate asset allocation until your portfolio grows some.
Educate yourself, the more you know and the less you rely on paid or free advice from others, the better. Unfortunately you will inevitably get some good and some bad advice, and unless you educate yourself, you won't be able to separate good from bad. Investment Books
Oh, and congrats, you're off to a very good start with saving & investing - you're at least 5 years smarter than I was way back when...
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I have started contributing to my company 401K plan this week. I'm contributing the maximum amount my company matches, which is 5%.Thanks for the link you've provided, I'll definitely be doing more research. I appreciate the input!
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11-26-2013, 03:47 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,722
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Quote:
Originally Posted by dpark6
Thanks for your response!
I understand at my age I should (and am) be willing to take on a little more risk in hopes for greater returns. However, I feel skeptical about investing soley on a stock fund because of the higher volatility associated with it.
Are you considering that I should invest in a stock fund given my financial situation? Or because of my youth I shouldn't be afraid to do so?
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You will get to the first 100K much quicker if you invest in the total us stock market. Then you can begin to think of adding fixed investments. Of course much more reading is necessary. And no one can predict how things will go.
How much of a drop in the total invested would you be OK with?
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11-26-2013, 03:56 PM
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#7
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Dryer sheet wannabe
Join Date: Nov 2013
Location: Rancho Santa Margarita
Posts: 15
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Quote:
Originally Posted by target2019
You will get to the first 100K much quicker if you invest in the total us stock market. Then you can begin to think of adding fixed investments. Of course much more reading is necessary. And no one can predict how things will go.
How much of a drop in the total invested would you be OK with?
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At the moment, I'm comfortable investing in $3000 and would be okay if I dropped it. Of course I wouldn't be happy about it, but it's what I'm willing to go with.
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11-26-2013, 04:24 PM
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#8
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Moderator
Join Date: Dec 2007
Location: Eastern WV Panhandle
Posts: 25,346
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Quote:
Originally Posted by Midpack
Oh, and congrats, you're off to a very good start with saving & investing - you're at least 5 years smarter than I was way back when...
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Or in my case, ten years. Some of us are slow learners.
__________________
When I was a kid I wanted to be older. This is not what I expected.
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11-26-2013, 04:29 PM
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#9
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Dryer sheet wannabe
Join Date: Nov 2013
Location: Rancho Santa Margarita
Posts: 15
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Give yourself some credit Walt, look at you now. 6099 posts later and now you're a moderator! And doing well I'm surre
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11-26-2013, 04:30 PM
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#10
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Thinks s/he gets paid by the post
Join Date: Jun 2004
Location: No. California
Posts: 1,858
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dpark6,
]
The Target retirement fund mentioned is a fund that is comprised of 4 other Vanguard funds. Looking at Target 2045 (your proposed retirement date) it has:
Total stock market index fund 63%
Total international fund 27%
Total Bond market fund 8%
Total International bond 2%
The other Target retirement funds have different percentages of these funds changing the risk level of each one.
So, investing in one of these actually gives you 4 funds.
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11-26-2013, 04:42 PM
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#11
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Dryer sheet wannabe
Join Date: Nov 2013
Location: Rancho Santa Margarita
Posts: 15
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Quote:
Originally Posted by KB
dpark6,
]
The Target retirement fund mentioned is a fund that is comprised of 4 other Vanguard funds. Looking at Target 2045 (your proposed retirement date) it has:
Total stock market index fund 63%
Total international fund 27%
Total Bond market fund 8%
Total International bond 2%
The other Target retirement funds have different percentages of these funds changing the risk level of each one.
So, investing in one of these actually gives you 4 funds.
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I just realized that this particular fund has the majority of funds going towards stock.. For some reason I thought more investments in bonds were involved, thanks for pointing that out for me.
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11-26-2013, 05:54 PM
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#12
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Dryer sheet wannabe
Join Date: Mar 2011
Location: slingerlands
Posts: 19
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Regarding KB comment....+1
Sound like you are off to an excellent start. Congratulations!
Now work really hard...at your age the sky IS the limit. You'll enjoy increases in your salary over time. Learn to put some of that away. Your nest egg will grow beyond your dreams. Once you learn to live on less than you make...you have learned the greatest lesson.
Having said that do not forget to live and enjoy yourself. You've earned it.
Keep us posted as well all enjoy your journey. Good luck!
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11-26-2013, 07:29 PM
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#13
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Recycles dryer sheets
Join Date: Sep 2007
Location: Chicago
Posts: 221
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If your company offers the option I'd recommend using a Roth 401k accoujt since you're in a low tax braclet.
__________________
Engineer (Retired) and sailor
Retired in 2018 at 39
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11-26-2013, 09:00 PM
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#14
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Recycles dryer sheets
Join Date: Apr 2013
Posts: 252
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+1 for a Roth 401k option, or Roth IRA outside of 401k. The reason your target fund is so high on equities is the long away target year, as you approach the target the bond % will increase. Key rule at your age is to stay in equities when the market goes down, many panic and leave stocks in bad market and then buy late into market rallies. Stay the course, and enjoy all the milestones 10k, 25k, 100k, they are great achievements, don't withdraw or loan against just grow your contribution, think of this as paying yourself, and you come first.
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11-26-2013, 11:29 PM
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#15
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Dryer sheet wannabe
Join Date: Nov 2013
Location: Rancho Santa Margarita
Posts: 15
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birdie- Thanks! I'm definitely enjoying my life right now, I'm very fortunate to have the job that I have. I have the pleasure of working with one of my best friend's Father's company and he treats me well. I've had close to 3 months worth of work off this year traveling Europe and South America! I have a feeling I might be working for him for awhile
seabourne- Unfortunately, my company does not offer a Roth 401K account.
Rothman- Thank you for your input. I don't anticipate ever withdrawing my funds until it's time for me to retire, that's the plan at least!
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11-27-2013, 05:20 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Jul 2002
Posts: 1,587
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Make sure you have a "rainy day" pot set aside for the unexpected before investing in anything else but the 401k match. If your car needed $2K of work, it'd be a shame to have to withdraw funds from an IRA and eat the penalty for the lack of funds to cover the unexpected.
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11-27-2013, 09:11 AM
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#17
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Dryer sheet wannabe
Join Date: Nov 2013
Location: Rancho Santa Margarita
Posts: 15
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Quote:
Originally Posted by RE2Boys
Make sure you have a "rainy day" pot set aside for the unexpected before investing in anything else but the 401k match. If your car needed $2K of work, it'd be a shame to have to withdraw funds from an IRA and eat the penalty for the lack of funds to cover the unexpected.
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That's a great idea, thanks for the input!
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11-27-2013, 10:05 AM
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#18
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Confused about dryer sheets
Join Date: Nov 2013
Location: Port Vincent
Posts: 9
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Lots of great advice in this thread. My simple suggestions:
Keep debts low, every time you get a raise live as if you didn't. Invest the rest.
Get your max company match out of your 401K first.
Open the ROTH IRA asap. It is the best thing going. Pay your self today we pretaxed dollars and pay yourself later tax free. Also can be used for education. Vanguard is a wonderful resource.
Don't buy too much house. It costs a lot to maintain an expensive house. Interest is a stupid tax.
Drive your cars till the wheels fall off. My lifetime personal automobile expenses average is under $2000 per year including (cash) payment and repairs for my entire life. I've been driving for 30 years for $60,000. One vehicle today can cost that much! Make smart purchases. I'm currently driving a 2005 F-250, 4-wheel drive, diesel King Ranch in near perfect condition. You can have luxury, buy smart.
Take smart vacations. National Parks (they are back open yeah!), national forests trails, Couchsurfing, camping, national seashores and motel 6. For hundreds and not thousands you can have the time of your life and get healthy exercise.
Credit cards are evil. Never use one unless you have the cash immediately available to pay it off. Interest is for stupid people to pay.
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11-27-2013, 10:12 AM
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#19
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Dryer sheet wannabe
Join Date: Nov 2013
Location: Rancho Santa Margarita
Posts: 15
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Quote:
Originally Posted by Bateauxdriver
Lots of great advice in this thread. My simple suggestions:
Keep debts low, every time you get a raise live as if you didn't. Invest the rest.
Get your max company match out of your 401K first.
Open the ROTH IRA asap. It is the best thing going. Pay your self today we pretaxed dollars and pay yourself later tax free. Also can be used for education. Vanguard is a wonderful resource.
Don't buy too much house. It costs a lot to maintain an expensive house. Interest is a stupid tax.
Drive your cars till the wheels fall off. My lifetime personal automobile expenses average is under $2000 per year including (cash) payment and repairs for my entire life. I've been driving for 30 years for $60,000. One vehicle today can cost that much! Make smart purchases. I'm currently driving a 2005 F-250, 4-wheel drive, diesel King Ranch in near perfect condition. You can have luxury, buy smart.
Take smart vacations. National Parks (they are back open yeah!), national forests trails, Couchsurfing, camping, national seashores and motel 6. For hundreds and not thousands you can have the time of your life and get healthy exercise.
Credit cards are evil. Never use one unless you have the cash immediately available to pay it off. Interest is for stupid people to pay.
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Wow, that's incredible you've been able to minimize your driving costs to that average for such a long period of time. Thanks for your advice!
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11-28-2013, 09:50 AM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,722
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Quote:
Originally Posted by dpark6
At the moment, I'm comfortable investing in $3000 and would be okay if I dropped it. Of course I wouldn't be happy about it, but it's what I'm willing to go with.
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I should have picked my words more carefully. What percentage drop can you tolerate? Obviously if all of the 3k disappears the game is over. Unless you invested in a few stocks only, that won't occur.
If you invest in the target fund with 90% equities, would you be OK with a drop of 45 percent? It sounds like you would be.
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